Expert Hour: What Lies Ahead For IT Sector Post Major Correction, Growth Drivers?

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Expert Hour: What Lies Ahead For IT Sector Post Major Correction, Growth Drivers?

By Malvika Gurung

Investing.com -- The domestic market opened on a muted note on Thursday and has been trading with a similar spirit in a lacklustre session amid mixed global cues. 

At the time of writing, the Indian equity benchmark indices Nifty50 traded 0.08% higher and Sensex traded muted with a positive bias. The market volatility index India VIX tanked 3.15%.

The sectoral index Nifty IT traded 0.4% lower, led by LTIMindtree (NS: LTIM ) slumping, followed by L&T (NS: LART ) Technology Services (NS: LTEH ). 7 out of the 10 stocks listed on the index were on a downward journey.

In a note sent to Investing.com, Vinod Nair, Head of Research at Geojit Financial Services shares his views on the outlook of the IT sector, given the ongoing massive lay-offs, stating that major IT companies in the US have felt the burn of macroeconomic headwinds and prepared for it by shedding off their employee strength through massive layoffs for improving margins.

On the contrary, the revenues of major Indian IT companies in the last quarter, Q2 FY23, remained consistent with healthy outlook commentary. The average margins of top IT companies expanded by 60 bps on improving operational efficiencies.

According to Nair, despite the macroeconomic headwinds that prevailed in the global markets, most of the revenue was supported by the cloud, engineering, and digital services.

Growth will be driven by healthy deals in the areas going ahead, Nair believes, adding that fresh hires, a return to office policies, and improved cost-cutting measures will lead the margins to likely normalise in the upcoming quarters.

“After a major correction the valuation of IT stocks have moderated by 1/3rd, which is marginally above average and accommodative on the long term basis though volatility can prevail in the short term due to global slowdown,” the market expert said.

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