Sentiment towards India’s IT services sector has become more bearish due to increasing global uncertainties, as per a report by BNP Paribas India. Investors, especially hedge funds, are refraining from making strong market calls and are reducing exposure by cutting factor-based positions. Recent volatility, such as sudden changes in US trade tariff policies, has made investors cautious about taking aggressive stances.
Concerns have arisen over potential earnings pressure in India due to the limited availability of liquefied natural gas (LNG). While crude oil volatility is seen as a temporary issue, the persistent LNG supply constraints pose a more structural risk for Indian companies, the report highlighted.
Although bearishness persists in the sector, the report suggests that short-term pessimism might have hit a low point. Long-only investors are doubtful about the sector’s long-term growth potential, with some considering scenarios of margin compression. However, there are perceived opportunities in the sector if the cyclical trough and top-performing companies are accurately identified.
Even bearish investors recognize the potential for near-term earnings upgrades in the sector driven by favorable foreign exchange movements. The report indicates that amidst heightened uncertainty in other sectors, the IT sector is currently seen as relatively attractive, supported by rupee depreciation. However, this positioning could change if geopolitical tensions in the Middle East ease swiftly.
Following the start of the US-Israel-Iran conflict on February 28, the Nifty IT index has dropped by 0.53 percent to 30,441.45. Over the past year, the technology index has experienced a decline of more than 10 percent.
