The tech stocks binge is hotting up again with the second wave of COVID-19

• The stocks of Indian IT companies from Tata Consultancy Services (TCS) to Mindtree are on fire as the rest of the market struggles against the uncertainty brought on by the second COVID-19 wave.
• The rally comes ahead of these companies getting ready to post their earnings next week and the street expecting robust numbers.
• Analysts believe that the deal momentum will carry IT companies through, not just the coming quarters, but the next two to three years.

The second wave of COVID-19 may be bad news for many sectors of the Indian economy, but not for information technology (IT) companies like Tata Consultancy Services (TCS), Infosys, Wipro and Mindtree.

The shares of Indian IT firms, big and small, have been rallying this past week in anticipation of blockbuster earnings, while the overall market remained volatile. Since April 1, Nifty IT has risen by 3.27% and the past week alone has brought in gains of 1.3%.

Source: NSE

“The fourth quarter is traditionally a soft quarter for IT companies, but this time around the street’s expectations are very strong,” Sanjiv Hota, vice president and head of research at Sharekhan told Business Insider India. That being said, some players are doing better than others on the stock market.

More than just the quarterly results, analysts believe that the inflow of demand due to the pandemic is also firming up the earnings of companies like TCS, HCL Technologies, Infosys and Wipro in the longer run. “A big shift that is happening. Earning visibility for the IT sector over the next two to three years is getting very strong,” Hota explained.

Greenback’s strength is only a temporary factor

The depreciating rupee, which softened to a two-week low on April 7 after the Reserve Bank of India (RBI) announced that India’s monetary policy will continue to support liquidity, is only a temporary movement. “Depreciating rupee is always good for IT companies. In the last three quarters, offshore proportion has increased,” said Urmil Shah, the vice president of institutional equities at IDBI Capital.

Overall, IT stocks are more fundamental in nature. “The results are expected to be particularly good with the increase in demand and second wave of COVID-19,” Harit Shah, a senior research analyst at KRChoksey told Business Insider, explaining how the market closed in the red on Monday, April 5, but IT stocks were among the top gainers.

The pandemic sped up demand from clients as more businesses looked to digital solutions to help employees work from home and keep in touch with their customers in a contact-less way. What started in the first quarter is going to come to fruition between January and March.

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