IT counters’ weak show could be a silver lining: Motilal Oswal Financial – News Air Insight

Mumbai: It may be time now to turn positive on the Indian IT services sector, said Motilal Oswal Financial. According to the brokerage, the underperformance of IT stocks has made their valuations more attractive, while the inflection point in spending on Generative AI services may still be a few quarters away.

“We believe that the past 1-year and 3-year periods of underperformance offer attractive valuations to start increasing portfolio weight in Indian IT names selectively and gradually,” said Motilal Oswal in a client note.

The brokerage said Indian IT services’ share in Nifty companies’ profits has been stable at 15% for the past four years, while its weight in the benchmark index is now at a decadal low of 10% (from 19% in December 2021).

“Indian markets have bounced back despite one of the heavyweight sectors (Indian IT services) underperforming in the past 12 months,” it said. In the past year, the Nifty IT index has been down 15.3%, while the benchmark Nifty is up 7.2%. Motilal Oswal Financial said the wait for the emergence of a new AI services cycle could be in its final legs.