IT Stocks: Two Factors That Could Make IT Stocks Happy Soon
The sector has been in the spotlight for various reasons. It saw an upward trend as demand increased due to the pandemic. Stock prices skyrocketed resulting in exorbitant valuations. However, the rise slowed as the rates of decline increased. The Nifty IT Index is down 22% since April 1, 2022.
Attrition rates in the industry have reached high levels with the increasing demand for skilled professionals. Companies provided high ratings and bonuses to retain talent and thus impact their profit margins. Despite this the employees turned and got better job offers. Some have even migrated to foreign sites and startups.
However, the tide is finally turning in favor of IT companies now. US tech companies have frozen hiring and layoffs over recession fears.
Nearly 22,000 employees in the IT sector have been laid off in 2022 so far. Nearly 12,000 new Indian employees have been affected by the layoffs. Ola, Blinkit, BYJU’s, and Mobile Premier League (MPL) are among the most prominent companies working to reduce their workforce.
These are all early signs of a depletion peaking. Attrition levels will be normalized as assessments are processed. Profit margins can be stabilized while staff costs are controlled.
Another positive for the sector is the weakness of the rupee against the US dollar, which is beneficial for exporters.
Nifty IT Index ratings are also at reasonable levels. The price-earnings ratio for the Nifty IT Index is now trading at 25.44x. It is down nearly 40% from its recent high of 40x.
The only major concern at this time is recession fears in the US. However, it appears that the markets have already priced it in.
With strong foundations and reasonable valuation, the IT sector is transforming for the better. Investors should take a signal and start investing in a staggered format.
technical outlook
The Nifty 50 closed on a strong note for the week, posting the highest gains in the past 75 weeks. Likewise, Bank Nifty also closed with significant gains. Both benchmark indices are trading in critical areas now. Nifty is trading around the previous resistance area and Bank Nifty is trading near the descending resistance channel. The major global indices are also trading around their descending resistance lines. So a slight decrease cannot be ruled out. However, the short-term trend remains positive, and looking at other market indicators like breadth and sentiment, we believe Nifty is heading higher to 17400. Immediate support and resistance is now positioned at 16,350 and 16,830 levels. A break below 16150 will cancel the bullish view.

Weekly forecast
Next week is set to be eventful. The FOMC meeting and press conference will be the focus of attention. While the price hike is expected to be violent, market players will try to read between the lines to determine the direction of the economy. The Fed will try to control rapidly rising inflation and not harm the labor market. Moreover, the market mood will be affected by the release of US GDP figures on a quarterly basis as well. When you come home, you can expect some volatility as we head towards our monthly expiration. Nifty 50 ended the week at 16,719, up 4.18%.
(Disclaimer: Recommendations, suggestions, opinions and opinions provided by experts are their own. These do not represent the views of the Economic Times)
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