Nifty IT outperforms Nifty 50 in 2024; can this trend continue? Experts pick TCS, Infosys among top IT stocks to buy | Stock Market News

Outlook 2025: Most IT stocks look set to end the calendar year 2024 (CY24) with solid gains. Their sectoral index, Nifty IT, has significantly outperformed the equity benchmark Nifty 50. Over the last year, the Nifty IT index has gained nearly 23 per cent compared to an 11 per cent gain in Nifty 50. IT stocks, such as Persistent Systems, Coforge, Tech Mahindra, Wipro and HCL Tech have soared 30-70 per cent in the last one year. However, two stocks – LTIMindtree and L&T Technology Services – are down about 8 per cent over the last year.

What drove the IT stocks in 2024?

Despite concerns over weak demand in key markets, including the US and Europe, many IT stocks rose in 2024, propelled by hopes of demand recovery due to the prospects of US Fed interest rate cuts, the resilience of the US economy and valuation comfort.

Experts pointed out that green shoots on discretionary spending are emerging, while there are signs of revival in tech spending and deal pipelines in the US.

Moreover, the Q2FY25 earnings of some IT majors and the management commentaries indicated a gradual recovery from the second half of FY25. This also boosted IT stocks.

Can IT stocks continue their outperformance in 2025?

A lot will depend on the interest rate trajectory of the US Fed and Donald Trump’s policies. In its December policy meeting, the US Fed revised the rate cut outlook and indicated that two rate cuts of 25 bps each may materialise next year.

However, some experts believe the US central bank is overemphasising inflation concerns, and there could be more than two rate cuts next year.

Ajit Mishra, SVP of Research at Religare Broking, observed that Trump’s return and potential US Fed rate cuts create a mixed yet positive outlook for Indian IT stocks in 2025.

“Trump’s pro-business policies and potential tax cuts could drive corporate spending and increase demand for IT services, while stricter immigration policies might pose challenges for Indian firms—challenges they have previously managed. How well these companies adapt to these changes will be crucial in balancing the opportunities and risks,’ Mishra said.

The Federal Reserve’s rate cuts are expected to stimulate U.S. economic growth by lowering borrowing costs and encouraging corporate investment. This should lead to higher spending on technology and digital transformation, thus boosting demand for Indian IT services.

Sagar Shetty, a research analyst at StoxBox, believes the IT sector will register strong performance across verticals, particularly in the BFSI segment, as clients show increasing interest in high-priority IT projects.

“Deal wins are expected to accelerate with an uptick in corporate discretionary spending, marked by improved TCV to revenue conversion due to lower deal leakages. Overall, the outlook for the sector is positive, driven by margin improvements, definite hiring plans indicating a stronger demand environment, recovery in key verticals, and growing traction in GenAI-based solutions,” said Shetty.

Shetty anticipates a mid-single-digit to low-teen-digit growth going forward, with moderate growth in Q3FY25 and a bounce-back in performance from Q4FY25 onwards, driven by recent deal ramp-ups and a lower base effect.

Rajesh Sinha, Senior Research Analyst at Bonanza Portfolio, pointed out that as IT companies are moving towards advanced technologies such as artificial intelligence and cloud computing, there is potential for growth despite external pressures.

“We believe companies focused on cloud computing, cybersecurity, and artificial intelligence are likely to thrive as organisations prioritise digital transformation initiatives. The push for innovation in these areas aligns with broader trends in enterprise tech spending, which are expected to accelerate due to favourable borrowing conditions,” said Sinha.

IT stocks to buy in 2025

Mishra considers TCS, Infosys, and HCL Tech to be strong stocks in the sector due to their robust balance sheets, solid client relationships, and diversified portfolios.

Shetty’s top picks from the sector are TCS and Infosys. “We continue to place our bets on large-cap IT companies, given their strong position in the market, which enables them to navigate the current business environment,” said Shetty.

Sinha recommends TCS, Infosys, HCL Tech, Tech Mahindra and Persistent Systems from the sector to buy in 2025.

“TCS is focusing on enhancing its digital services and has a strong order book, which positions it well for future growth despite recent challenges in revenue growth. Infosys, which has a significant portion of revenue derived from digital services, is expected to benefit from ongoing digital transformation trends across industries, making it a solid investment choice,” Sinha said.

“HCL Tech is pursuing large deals and has identified several growth vectors, which could lead to double-digit growth in the medium term. Tech Mahindra’s exposure to the US banking sector and recovery in tech spending could provide upside potential as market conditions improve. Persistent Systems has demonstrated consistent revenue growth, achieving its 18th consecutive quarter of growth, driven by strong demand in the healthcare sector and a robust AI strategy,” said Sinha.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.