Nifty IT index on an uptrend: Why are IT stocks rising? What should investors do? Experts recommend these stock picks

Most IT stocks — including TCS, Infosys, HCL Tech, Tech Mahindra, and LTIMindtree — witnessed healthy buying interest on Tuesday, April 29, rising between 1 per cent and 4 per cent and lifting the Nifty IT index by nearly 2 per cent in intraday trade.

Around 1:50 PM, the Nifty IT index was 1.86 per cent up with all components in the green. Shares of LTIMindtree, Tech Mahindra, Persistent Systems, Coforge, HCL Tech, Infosys, TCS, MphasiS, Wipro and Oracle Financial Services Software were up at least by a per cent.

Equity benchmark Nifty 50 was up with a mild gain of 0.15 per cent at that time.

Why are IT stocks rising?

IT stocks have seen healthy buying interest over the last few days. On a weekly scale, the Nifty IT index is up for the third consecutive week, signalling improved sentiment after the Q4 results of major IT players.

The Q4 results of TCS, Infosys, HCL Tech, Wipro and Tech Mahindra were largely on expected lines. While their management sounded cautious due to prevailing global uncertainty, experts noted no major negative surprises.

Experts highlight that a trade deal between the US and China could dispel the gloom surrounding the global economy, boosting discretionary spending in key Western markets. This, in turn, could trigger a fresh rally in IT stocks.

"The current challenges facing the Indian IT sector appear to be a short-term sentiment-driven correction rather than a structural concern. While macroeconomic uncertainty, regulatory hurdles, and cautious client spending affect growth, the sector's fundamentals remain strong," said Ajit Mishra, SVP Research, Religare Broking.

Mishra pointed out that Indian IT firms are well-positioned for long-term growth due to continued investments in emerging technologies like AI, cloud, and cybersecurity.

"Once global conditions stabilise, the sector is likely to see a recovery, supported by ongoing digital transformation needs," said Mishra.

Devarsh Vakil, Head of Prime Research at HDFC Securities, expects stronger growth momentum driven by increased technology spending, particularly in AI-led digital initiatives, could eventually bring revenue visibility for the Indian IT players.

What should investors do?

Experts advise focusing on companies investing in high-growth areas like AI, cloud, and digital transformation and avoiding overexposure to firms heavily reliant on discretionary spending.

Vinit Bolinjkar, the head of research at Ventura, believes mid-cap IT companies, especially in ER&D space like LTTS, Tata Elxsi, Cyient, KPIT, etc., may outperform large-caps due to their niche expertise and faster growth in areas like software product engineering and data analytics.

Karthick Jonagadla, smallcase manager and founder at Quantace Research, suggests adopting a barbell strategy—favouring both large-cap leaders like TCS and Infosys for their resilience, and niche mid-cap firms specialising in AI and cloud services for growth potential—can offer a balanced exposure.

Jonagadla advise accumulating shares of TCS and Infosys during market dips, as their substantial revenue bases and strong cash flows provide a cushion against volatility.

However, Jonagadla added that increasing exposure should be contingent upon observing a consistent improvement in EBIT margins over two consecutive quarters, signalling operational efficiency and potential for growth.​

According to Sneha Poddar, VP - Research, Wealth Management, Motilal Oswal Financial Services, companies with data engineering, automation/RPA, and BPO capabilities are positioned to perform relatively better. In contrast, application modernisation, large transformations, and consulting-heavy work may remain under pressure.

"Investors should follow the approach of accumulating fundamentally strong IT stocks at a gradual pace (over the next two to three quarters) with a long-term investment view," said Poddar.

IT stocks to buy

Tata Consultancy Services, Infosys, HCL Technologies, KPIT Technologies, Persistent Systems, Coforge and LTIMindtree are Jonagadla's top picks from the sector.

Vakil of HDFC Securities picks Infosys, HCL Tech, Persistent, Coforge and Zensar Tech.

Poddar of Motilal Oswal Financial Services prefers Tech Mahindra among tier-I players.

She also picks HCL Tech for its all-weather portfolio and believes TCS offers a fair risk-reward balance.

Among Tier-II players, Poddar prefers Coforge and Persistent.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.