The IT index of Nifty is now close to its new high of past 52-weeks on Thursday. The IT stocks index has gained 16% in 2020 while losing 4% in Nifty 50. All IT stocks have touched a new high in the 52 weeks barring from Tech Mahindra Ltd. It has pushed its valuations even further.
Nevertheless, there is a new ray of urgency among clients to upgrade their digital capabilities due to the COVID-19 pandemic. Shareholders may see it as an opportunity as the technology spend is accelerating.
COVID -19 Gave Boost to IT Stocks
It is expected that global spending on IT services would hike approximately 7% annually from 2020 to 2024. It would be most likely to be higher than the annual expansion in the year 2010 to 2019 of 3.5% as per Gartner Inc., (1) data that is compiled by Jefferies India Pvt. Ltd (2).
Notably, IT firms’ total spending is projected to fall by 6.8% in the current fiscal year due to the pandemic.
Many sectors are driving their investment with the requirement to strengthen their digital capabilities. The organisations from several sectors are boosting their investments in the IT transformation, and innovation is not new.
As per the experts, there is an opportunity to perform better in the upcoming five years at the industry level. The renewed thrust for upgrading and innovative transformation on digital platforms will help IT companies to recover. IT firms would convert the deal pipelines into orders.
However, the recovery may not be uniform across the sector. Experts believe that companies providing better output are most likely to get more clients and their IT spends. The market is to get more apparent with the upcoming quarterly results.