IT stocks plunge up to 5% on Monday after 8% rally last week. Know how experts view sector!

The IT sector has been a laggard over the last quarter with the witnessing a decline of 7%. However, the last one month has been positive with 4% returns.

Sandip Agarwal of Sowilo Investment Managers said that the IT sector has undergone both time and absolute price correction for the last one-and-a-half to two years. Giving a perspective on the sector, Agarwal highlighted how the was the first one to hit the sector when Covid started receding. A very substantial jump in attrition rate triggered and since then, the sector has not done well.

With attrition now under control, margin should expand because margin is a direct factor of where the attrition is, and where utilisation is. He does not see in a substantial manner in the immediate term and expects growth to pick over the next two quarters.

Brokerage Kotak Institutional Equities sees to likely be a better year for Indian IT aided by low base of FY2024 and some recovery in macro outlook. Mid-tier names such as Persistent and Coforge have managed to grow in double-digits by gaining share in select accounts even as the declined for several Tier 1 firms due to weak discretionary spending and insufficient flow/conversion of cost take-out deals.

But several firms have called for recovery in BFS in FY2024, including Infosys, Wipro, Cognizant, LTIM and Mphasis and have highlighted green shoots such as better performance of capital markets segment, stability in the mortgages market and increase in demand for consulting services, Kotak note said.

Moreover, better conversion of and from regional banks are other positive triggers.

Considered as a defensive play, independent analyst Anand Tandon prefers FMCG over IT, while conceding that both sectors have been under-owned and have underperformed quite considerably. The market is also looking for areas to rotate.

Pramod Gubbi, Marcellus Investment, said that IT remains a kind of early stage cyclical and particularly sensitive to . As the interest rate cycle remains at its peak, the chances of cuts are higher today, he opined.

While the European Central Bank (ECB) took lead in cutting the policy rate by 25 bps, the real turnaround is expected when the US starts slashing the rates.

"In fact, starting last April, when the Federal Reserve signalled the peaking of the interest rate, we saw a rally in IT in anticipation of potential rate cuts. However, that rate cut has not transpired nor has any sort of pickup in terms of discretionary spending by global enterprises on IT," Gubbi said.

With ECB cutting interest rates, expectations of rate cuts have picked up and hence, therefore a pickup in discretionary spending, he said further.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)