HCLTech jumps over 7%, TCS up 5%: Why are IT stocks rallying

Dalal Street began Tuesday on a strong note, with tech-heavy stocks fuelling the gains and pushing the BSE Focused IT index and Nifty IT around 3% higher. HCLTech emerged as the top gainer, rising 7.11% to 1306.80 after reporting strong quarterly results a day earlier, backed by improved profitability metrics.Tata Consultancy Services (TCS), India's largest IT company, also gained 5.69% to 2248.00 after announcing a 15% rise in net profit in its quarterly earnings last week. Other IT stocks joined the rally, with Tech Mahindra climbing 3.52% to Rs 1,521.70 and Infosys rising 2.06% to Rs 1,038.Around 10:55 am, the Nifty IT index was up 3.12%, or 885.65 points, at 29,235.25, while the BSE Focused IT index had gained 3.04%, or 1,044.37 points, to 35,366.87. The broader market also traded higher, with BSE Sensex rising 466.15 points, or 0.65%, to 72,390.83. Nifty 50 was up 145.30 points, or 0.65%, at 22,508.65.Why are IT stocks rallying?Better-than-expected quarterly results from major IT companies have encouraged investors to return to beaten-down shares, raising hopes that concerns over the sector's earnings growth may be easing.Dharmesh Kant, head of equity research at Cholamandalam Securities, told Reuters, "The quarterly numbers reported by Accenture, TCS, and HCLTech indicate that the worst of earnings growth concerns for IT companies might be behind us. This is triggering a value buying opportunity in the sector."Despite Tuesday's rally, IT stocks have had a difficult year.The Nifty IT index has fallen 23% year-to-date amid moderating earnings growth and concerns about artificial intelligence disrupting traditional software services businesses.Rupee's recovery provided further support to market sentiment. The currency strengthened to 95.25 against the dollar after the Reserve Bank of India announced additional measures to ease pressure on the domestic currency.Inflation, crude prices remain top concernsInvestors are also keeping a close watch on the interest rate outlook after retail inflation accelerated to a higher-than-expected 5.54% in September. The latest reading has put the Reserve Bank of India's rate decisions in focus.Crude oil prices remain another concern. Brent crude futures fell by more than 1% during the day but continued to trade above $100 per barrel. Persistently high oil prices have fuelled inflation worries, particularly amid a weak monsoon.While domestic IT stocks advanced, global technology shares faced pressure following reports of rapid technological advances by Chinese chipmaker ChangXin Memory Technologies.The developments triggered a global sell-off in chipmakers, with South Korea's technology-heavy Kospi falling 6%. An index tracking Asian shares excluding Japan declined by more than 2%.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)You use AI every day. Now get your AI Quotient. Take the AIQ test.