IT Stocks Soaring: Persistent, Coforge, and HCL Tech Witness Surge - What's Behind the Rally?
Nifty IT rose 2.50?spite market volatility, led by major players like Persistent Systems, Coforge, MPhasis, HCL Tech, and Wipro, in contrast to Tuesday's decline. Analysts attribute this surge to investors reallocating amid post-election uncertainty, favouring undervalued sectors such as IT, FMCG, auto, and pharma. Saurabh Jain of SMC Global Securities highlights a shift to safer segments like IT due to prolonged undervaluation and lower downside risk. Avinash Gorakshkar from Profitmart Securities observes increased investments in FMCG, pharma, IT, and healthcare during market downturns, with these sectors serving as safe havens for investors.
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Jun 6, 2024
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Despite significant volatility on Dalal Street, the Nifty IT index surged by approximately 2.50% on Wednesday, showcasing robust performance amidst turbulent market conditions. Major IT stocks, including Persistent Systems, Coforge, MPhasis, HCL Technologies, and Wipro, experienced substantial gains during Wednesday's trading session. This rally starkly contrasts the market crash witnessed on Tuesday, where the Nifty IT index remained relatively unaffected compared to other segments. Analysts attribute this uptrend to a strategic shift by investors amid ongoing market volatility spurred by concerns over political instability following the Lok Sabha Election results. Investors are reportedly reallocating their investments from overvalued sectors to undervalued ones, aiming to mitigate potential losses in case of further market downturns.
Triggers for IT stocks
Saurabh Jain, Vice President of Research at SMC Global Securities, explained that amidst market volatility, investors are reallocating their investments from overvalued to undervalued sectors. Consequently, there is an upward trend in safer segments such as IT, FMCG, auto, and pharma. Due to prolonged sell-off pressure, IT stocks have remained relatively undervalued for over a year, prompting investors to channel their funds into this sector, as the downside risk in IT stocks is perceived to be lower compared to industries like PSU, banking, defence, and metals. This phenomenon of shifting investments from one sector to another, known as 'sectoral shift', is currently driving the surge in IT stocks.
Safe haven bet
During market turbulence, specific sectors serve as safe havens, reassuring investors. Avinash Gorakshkar, Head of Research at Profitmart Securities, elucidates that there is typically an uptick in investments in FMCG, pharmaceuticals, IT, and healthcare sectors when the Indian stock market undergoes significant declines. Following the disappointing Lok Sabha Election results, this trend was observed as investors strategically shifted towards these safe havens on Dalal Street. Consequently, the Nifty FMCG Index emerged as the sole to close higher on Tuesday. At the same time, Nifty Pharma, Nifty Healthcare, and Nifty IT exhibited resilience, remaining relatively unaffected during the preceding session.
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