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The Nifty IT Index inched higher on Monday after it gained a whopping 4.30% on Friday. In the last two days, it has gained 5.43% to reach 29945.15 points. The Indian, as well as global markets strengthened after inflation from the US, showed signs of cooling, coupled with a weaker dollar. 

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The Nifty IT Sector gave stellar returns post the COVID-19 pandemic, however, investors have lost interest in the sector, as it has not done well in the past year. The Nifty IT index shrunk 17.83% in the last year. 

Most of the constituents of the index have been in the red for the past year, however, they recovered a little after announcing their quarterly earnings for the July to September quarter. 

Major constituents of the Nifty 50, except Infosys, TCS, HCL Technologies, and Persistent Systems reported a decline of 25% to 40% in their share price, in the past year. 

Vaibhav Agarwal, small case manager & Head of Research, at Basant Maheshwari Wealth Advisers LLP, said, “The current situation is that while the demand remains resilient and attrition is coming down, most IT stocks have corrected 40-50 per cent from their peak. Large companies like Infosys are announcing buybacks. With the dollar expected to appreciate as interest rates in the US go up, there is a further tailwind to earnings. Midcap IT companies which are specialising in particular segments where they have a niche or expertise should do better than larger cap IT companies.” 

However, deployment in the sector should be slow and gradual in nature as there would be unknown risks ahead that might further degrade valuations, according to ICICI Securities,. Therefore the worst might not be over for the sector. 

The brokerage said that macroeconomic challenges have worsened in the last three months and the impact can be seen on the technology sector. For example, SaaS players are experiencing elongation in deal cycles and there is a reduction in revenue guidance by some SaaS companies.

In addition, there is weakness in verticals such as mortgage, capital markets and retail for IT services. Further, hiring has slowed down in the sector. 

Written by Simran Bafna 

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