Why are tech stocks booming ahead of Infosys’ earnings?

By Angel Broking | Published on 16th July 2021 | 41

Why are tech stocks booming ahead of Infosys' earnings?

An Overview

Indian stocks closed the day higher on Wednesday, boosted by advances in information technology stocks, with investors expecting industry leader Infosys to announce greater quarterly profit after the market closure. The blue-chip NSE Nifty 50 index advanced 0.26 percent to 15,853.95, while the benchmark S&P BSE Sensex climbed 0.25 percent to 52,904.05.

Markets started the day slightly down on Wednesday, as the greatest increase in US inflation in 13 years bolstered prospects of Fed reduction. Despite the Federal Reserve’s efforts, a spike in domestic IT stocks helped to recoup some of the early losses. The Nifty IT index increased by more than 3% to a new high. MindTree and Wipro were among the top gainers in the sub-index, with shares rising 9.3 percent and 7.2 percent, respectively.

Larger rival Infosys was up 2.1 percent ahead of first-quarter earnings, with investors predicting a profit increase as global corporations extended their digital capabilities during the pandemic.

S&P Global Ratings kept India’s sovereign rating at the lowest investment grade of ‘BBB-‘ on Tuesday, saying that the country’s capacity to rebound from the current economic downturn hinged on the government’s ability to implement reforms that encourage investment and job creation.

Further Key Takeaways

The IT stocks have suddenly gone bullish in the intraday session ahead of Infosys’ earnings. In the intraday trade session, the NSE Nifty IT index rose roughly 1.25 percent, with stocks like Wipro and MindTree among the top gainers. Market expects strong Infosys results in the near future, thus investors have begun buying other IT stocks.

The market is anticipating a strong Infosys performance, which would impact the EPS and PE ratios of other IT firms. Because of the favourable influence of Infosys’ results on other IT firms, stock market investors are buying other IT stocks. Beneficial Infosys results will have a positive impact on the EPS and PE ratio of other IT stocks.

The market is anticipating excellent Infosys results, with the company expected to provide increased upward forecast and earnings. Previously, results exceeded market expectations, triggering an upside run in mid-cap IT equities that is currently going strong. Now, following the good Infosys earnings, there is a strong likelihood that the rise would be duplicated in large-cap IT equities as well.

Swing trading

In the next one and a half to two years, one should allocate 15-20% of one’s portfolio allocation to IT stocks, as these firms are projected to remain portfolio equities in the time frame given. Tech Mahindra, HCL Tech, and Infosys as possible IT equities to buy now for improved long-term profits.

Infosys wants its employees back in the office

Despite the fact that Infosys has accepted that the future will involve a hybrid working model for its employees, Pravin Rao, COO of Infosys, stated that the company expects to have roughly 30% of its employees working from its offices in the next six months, assuming the third wave has a little impact. Approximately 10% of the company’s employees are fully vaccinated, while 59% have got at least one COVID-19 vaccine. Employees in tier-2 and tier-3 cities have shown reluctance to return to work, while those residing in metros have voiced a need for flexibility, according to Rao.

Following impressive earnings, MindTree’s stock price has soared

After good first-quarter earnings for FY 2021-22, MindTree’s stock is up roughly 7.5 percent today. The IT firm recorded a 7.7% increase in revenue from the previous quarter to $310.5 million. Growth was 8.6% in INR (Indian National Rupee) terms. The weakening of the Indian rupee led to a decrease in QoQ. The expansion was broad-based, with strength in the travel segment and the North American market helping.