Since Federal Reserve Chair Jerome Powell hinted at adjusting the US central bank's monetary policy, raising hopes for a rate cut in the upcoming September meeting, the information technology sector has surged back into the spotlight. Stocks, especially those belonging to the mid-cap space like NIIT, Datamatics Global Services, KPIT Tech, and eClerx Services, have surged 6-20 percent in trade on August 27.
The party in the midcap IT space is basking on expectations of strong growth prospects and reasonable valuations offered by this pocket in the market. Aside from these sectoral expectations, stock-specific triggers also led to the spike in several midcap IT names.
Take NIIT for example, the stock is up 16 percent today, extending its uptrend to the eighth straight session. Not just that, the stock also skyrocketed 20 percent in the previous session after veteran investor Ramesh Damani bought a 0.6 percent stake in the company last week.
On the other hand, a sharp spike in volumes in the counters of KFIN Tech, Tata Elxsi and eClerx Services, lifted these shares 6-10 percent higher. As for Datamatics Global Services, the company's partnership with global tech major Microsoft took the stock to its 20 percent upper circuit.
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Meanwhile, sentiment for the overall information technology sector has vastly improved following signs of an imminent rate cut in the US. Expectations of a recovery in discretionary demand on the back of easing monetary policy, growth prospects emerging from AI wave and underperformance in recent times are just some triggers that are driving sentiment for the sector.
However, taking a rather contrasting stand, brokerage firm HSBC expressed concerns over the mid-tier IT space, highlighting weaker margin performance as a significant risk. The brokerage also remarked that mid-tier IT companies are now trading at a 50 percent premium to top-tier firms, compared to a 35 percent discount over the past five years.
However, the firm also raised price targets for several mid-tier IT names like Coforge, Mphasis, L&T Tech and KPIT Technologies.
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