Nifty IT Index Is Enjoying A Good 2024 But Trump’s Policies Hold The Key

Nifty IT index has been one of the major gainers this year. This rally has come at a time when the Indian market has been struggling to hold on to its recent record high levels. Owing to FII outflows, most indices in Nifty 50 and Sensex are currently struggling. As profitability of India Inc took a beating with questions raised over future growth prospects in the coming quarters, investors are wary of taking continued exposure to many stocks. Valuations are also not providing any comfort given the swift rally seen in last two years. Against this backdrop, Nifty IT index seems to be an outlier this year. Last year, Nifty IT index was one of the laggards among all indices. Despite a bull run, most IT companies’ shares did not see much of investors’ interest amid a slowdown in demand. However, things have changed for the better this year. Year to Date (YTD), Nifty IT index has given a return of close to 25 per cent so far. In the last six months, the gains are close to 30 per cent. It shows that investors are taking exposure to IT stocks as most other indices show signs of losing momentum. Currently, Nifty IT index is hovering near its 52-week high level of 44,244.

In this perspective, the doubt will be whether such a rally can sustain in the coming quarters. In order to get answers, on should analyse the factors driving the bullish run. Firstly, Indian IT industry has shown marked improvement in its performance during the second quarter (July-September) in the ongoing financial year. Most analysts see it as an ongoing slowdown bottoming out. Moreover, BFSI (banking, financial institutions and insurance) is visible green shoots. This augurs well for the overall global IT industry as most services providers draw one third of their revenues from the financial services vertical. Even more important is that the United States of America, which contributes more than 50 per cent to most Indian services providers’ top line, is showing signs of revival. These factors can be counted as positives for the IT industry as a whole. As market factors in future performance into stock movement, Indian IT stocks are doing well at this point of time. Secondly, a set of global factors are also supplementing this performance.

Importantly, the tech-heavy Nasdaq has seen gains of close to 30 per cent YTD. Usually, Indian IT stocks take cue from the movement of Nasdaq. This year, the sentiment has definitely played in Nifty IT index’s favour. As Donald Trump gears up to take over as the next President, investors have to evaluate what can change under his presidency. Historically, Republicans support business-friendly policies. It implies that higher US GDP growth can push technology spending by the American enterprises. Meanwhile, analysts caution that Trump has been traditionally averse to offshoring of work. Therefore, investors have to keenly watch the Trump administration’s policies to gauge whether the rally being seen in IT index is sustainable in the long run.