Infosys share price hits new 52-week high, BSE IT index at record high; what’s fueling IT stocks rally?

IT stocks such as Infosys, Mindtree, Persistent Systems among others were trading higher on Thursday, ahead of quarterly earnings of IT companies that start pouring in from next week. Meanwhile, the BSE IT index climbed over one per cent to a new all-time high of 28,032.87 levels. Coforge (formerly NIIT Technologies Ltd), Larsen & Toubro Technology Services (LLTS), Mindtree and Persistent Systems hit fresh record highs on Thursday. Currently, IT stocks are doing good and also outperforming broader indices. The partial lockdowns, restrictions on the number of employees in the office, increasing work from home, and recovery in the IT sector in the US, are fueling the current rally in IT stocks, said an analyst.

Infosys hit a new 52-week high and Mindtree a fresh all-time high in today’s session. “Both the stocks were trading in uncharted territory so the upper side can not be predicted but on the downside, 1380-1400 is the demand zone for Infosys while Mindtree has a demand zone at 2100-2130,” Vishal Wagh, Head of Research, Bonanza Portfolio Ltd, told Financial Express Online. Wagh advised investors to hold both the stocks with a stop loss below the demand zone. While for the new entry, the strategy should be by on deep, Wagh said.

Infosys may announce buyback

From the BSE IT index, Cyient and Sonata Software shares too hit new 52-week highs. Domestic research and brokerage firm Prabhudas Lilladher said that cash and short term investments have jumped by 25 per cent on-year for Infosys in the first nine months of FY21. “Infosys is a probable candidate to announce buyback given its strong FCF/PAT conversion (105 per cent on 9MFY21), strong cash balance and lower payout ratio,” the brokerage firm said. Infosys completed its latest buyback on August 26, 2019. “We believe Infosys can do a buyback of Rs 14,400 crore (20% of net worth) which would be higher than their past buybacks (13 per cent of net worth in Jan 2019 and 18 per cent of net worth in Aug 2017). Max permissible size of the buyback is 25 per cent of net worth,” it added. Buyback May offer strong support to current expensive valuations of IT stocks.

Expectations of robust Q4FY21 results and a weakening rupee have led to a strong rally in IT stocks. “Technically, Infosys looks strong and a close above 1453 could lead to 1530 in the coming sessions. 1400 will be a strong support,” AR Ramachandran, Co-founder & Trainer, Tips2Trades, told Financial Express Online. For Mindtree, Ramachandran believes that the stock seems to be overbought and levels close to 2275-2285 should be used by investors to book profits and re-enter near 2070 levels only.

Infosys can be a growth leader over FY21E-FY24E driven by mega-deal wins, consistent investment in talent, new cloud-focused offerings and expanding ecosystem partnerships, said an analyst. “Mindtree is a key beneficiary of the recent surge in deal wins and improvement in travel and hospitality vertical,” said Suyog Kulkarni, Senior Research Analyst at Reliance Securities.