IT stocks shine: TCS, Mphasis, Coforge, Infosys, others power Nifty IT up 2.2% despite overall weak market; here's why

IT sector stocks like Tata Consultancy Services (TCS), Infosys, Mphasis, and Coforge, among others, surged during the trading session on Thursday, October 8, as investors focused on the upcoming TCS Q2 earnings, which will provide insights into sectoral performance in the period amid a broader weakness in the equity market.

NSE data showed that the sectoral benchmark Nifty IT index rallied 2.23% to hit a day’s high of 28,378.90 points on Thursday’s market, in comparison to 27,757.80 points at the previous equity market close.

After touching the day’s high, the index retracted some of its intraday gains, trading around 1.1% higher at 28,072 points during the trading session on October 8. Stocks like Mphasis, Coforge, Tech Mahindra, TCS and LTM were leading the pack of gainers on Thursday.

While IT stocks gained on Thursday’s market, the broader benchmark equity indices suffered losses due to elevated global bond yields, rebounding crude oil prices, and selling pressure from the Asian markets.

The benchmark NIFTY50 was down 1.1% at 22,357 points, while the BSE SENSEX was down 0.93% at 71,963 points as of the noon deals.

Why are IT stocks rising today?

Equity investors were reacting during the trading session on Oct. 8, based on the momentum ahead of TCS's upcoming Q2 earnings report and second interim dividend issue, which is scheduled to be published around the market closing bell.

TCS’s earnings will not only kick off the Q2 earnings season, but the results will also provide guidance or an indication of the financial health of the sector and will set the stage for the upcoming earnings announcements.

Market experts predict that the constant currency revenue figures, along with the company’s order book quality, will remain in focus in the Q2 results amid expectations of lower single-digit sequential growth and double-digit year-on-year growth in the period.

The overall outlook for the Indian IT sector remains muted due to headwinds in the market, despite global IT consulting major Accenture’s positive growth forecast on healthy demand and stronger execution ahead.

The sentiment in the market remains cautiously positive for IT stocks ahead of TCS’s earnings, as deal conversions and revenue growth potential have prompted momentum in the sector.

“The quarter that changes my structural caution is one where tier-one constant-currency growth re-accelerates above 2% sequentially with the order book rising and margins intact, which would mean AI revenue has turned net new. Until a print says that, rallies in the sector are rented, and the results season starting October 8 is the next test of whether the lease has been extended,” said Harshal Dasani, Business Head of INVasset PMS.

IT stocks in focus today

Rupee weakness

The overall weakness in the Indian rupee also added to the sentiment of the IT stocks on Thursday’s market, as these companies enjoy a direct margin benefit from a higher US dollar value, with the majority of their clients based in America.

With the help of the US dollar appreciation due to the geopolitical uncertainties, the IT companies catering to clients abroad will witness a increase in their quarterly revenues in a particular period.

Investing.com data showed that the Indian currency was trading 0.26% weaker at 97.01 against the US dollar on October 8, in comparison to 96.76 per dollar at the previous currency market close.

This comes one day after the Indian rupee weakened to over a 4-month low level due to RBI’s rate-hike policy strategy, while changing the stance remove rate cut potential in the near-future.