IT stocks have caught the spotlight amidst market volatility, with the Nifty IT index rising by 5% over the past month. This growth is attributed to a rebound in BFSI (Banking, Financial Services, and Insurance) and an increase in AI-related deals.
Analysts at Bernstein predict a growth upcycle, projecting a normalised growth phase by FY26. The IT sector's recovery presents a promising avenue for share market investment enthusiasts looking for long-term opportunities.
BFSI and AI-related deals lead the growth trajectory
Bernstein highlights that strong order books and reduced inefficiencies primarily drive the IT sector's growth momentum. The BFSI sector, known for its resilient margins and customer relationships, remains a key driver. AI-related deals are scaling up, adding further momentum to the growth story. This development opens doors for strategic share market investment, especially in companies with robust BFSI portfolios like Infosys and TCS, which derive significant revenue from the US market.
Mid-cap IT stocks show promising potential
In addition to large-cap players, mid- and small-cap IT stocks are gaining attention. Persistent Systems, with 80% of its revenue from the US, is poised for high-teens growth in the medium term. For investors diversifying their share market investment portfolio, such niche players present an attractive opportunity.
Market performance in recent months
IT stocks have outperformed the broader market recently. While the benchmark Nifty 50 index stayed flat to negative, the Nifty IT index climbed 5%. Individual IT giants like TCS, HCL Tech, and Wipro recorded gains of 2-8% during this period. Despite challenges such as the absence of mega deals, the sector's resilience underscores its attractiveness for share market investment.
Analyst outlook: Growth to accelerate in FY26
Although FY25 witnessed subdued activity with a 0.35% decline in contract value, analysts remain optimistic about FY26. A rebound in short-cycle and discretionary deals is anticipated, driving growth further. For investors eyeing the IT sector for share market investment, the current volatility offers an entry point into a sector with promising long-term potential.
Invest safely
IT stocks continue to demonstrate resilience amidst market volatility, supported by BFSI recovery and AI-related deals. With the sector poised for accelerated growth by FY26, both large-cap and mid-cap players offer lucrative opportunities for share market investment. As the upcycle gains momentum, savvy investors can leverage this phase for robust returns.
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