The sector of the stock market which was making investors cry the most in the first six months of the year, has brightened everyone’s fortunes in July. The Indian IT sector has made such a spectacular comeback in July that even those betting on recession were surprised. In just one month, the shares of Nifty IT index have put Rs 3.82 lakh crore in the pockets of investors. Now the biggest question is whether this bullishness will continue further, or is it just a temporary bubble?
Big companies made bumper earnings
Nifty IT index has risen 15.66% in the month of July. All the 10 stocks included in this index have given huge profits to the investors, out of which seven stocks have gained more than 15%. The maximum increase of 26% was in Persistent Systems. After this comes HCL Tech and LTIMindtree.
TCS took the biggest leap in terms of money making. The market cap of this single company increased by about Rs 1.48 lakh crore. After this, HCL Tech and Infosys also gave strong returns to the investors. Of the total sector earnings of Rs 3.82 lakh crore, about three-fourths have come from these three big companies.
Why did this sudden rise occur?
Market experts say that this rise is actually the result of ‘short covering’. Think of it this way, traders who had previously sold shares thinking that the market would fall (bearish bet), were forced to buy back their positions when the prices rose. According to Yes Securities data, recession bets in the IT sector decreased by 22% during this period.
Apart from this, the mood of the markets around the world has also changed. Investors who were till now chasing foreign AI hardware companies are now withdrawing their money and investing it in Indian IT companies. Foreign investors are now getting Indian shares at cheap and attractive valuations. Brokerage firm Jefferies has also changed its outlook on the IT sector to be positive in view of the changing mood of foreign investors.
Would it be right to invest money now?
Experts believe that the earnings figures of the companies are not yet strong enough to fully justify this stormy growth. Sonam Srivastava, founder of Right Research, says that this rise is mostly a part of short covering. However, a weakening rupee against the dollar can increase the profits of these companies. His advice is that instead of investing money all at once, investors should gradually buy shares of selected strong companies in the next 6 months.
Bet on long race horses
Most market experts agree that investors should not blindly follow this sudden rise. Rajesh Palvia, Research Head, Axis Direct also has the same advice. He says that whenever there is a slight decline in the market, then buy shares of IT companies with good and strong balance sheet with a perspective of 12 to 18 months.
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