rewrite this title and make it good for SEOHigh-risk investors can bet on Nifty IT index

Mumbai: High-risk takers eyeing a contra play for their equity portfolio can consider betting on the Nifty IT index fund. With the IT index underperforming the broader markets in recent times, it offers an attractive entry point for investors, said fund managers.

“The sector has been facing several headwinds such as AI impacting the business models of Indian IT, H-1B Visa issue, HIRE act and its impact on outsourcing, slowdown in the US macro and corporate IT spends and GCCs taking away share from Indian IT,” says Viraj Kulkarni, vice-president – equity, Bandhan AMC.

All these worries have led to the Nifty IT index being one of the worst performers over the last one year, losing 19.6% from its December 2024 highs. Over the last one year, it has lost 11.7% compared with the broad Nifty 50, which gained 12%. Over a three-year period, Nifty IT returned 9.58% compared with the Nifty gain of 13.70%.

This sharp fall has led to cheaper valuations, with the Nifty IT index trading at a dividend yield of 3% compared with the Nifty 50 yield of 1.3%. Companies like TCS, Oracle Financial and Wipro within the IT index offer a dividend yield of 4-5%.

“In the past, these stocks have generally bottomed close to these dividend yield levels,” says Kulkarni.

Some fund managers believe investors can also add the Nifty IT index to diversify existing equity portfolios away from domestic risks, as 76% of its revenue comes from the US and Europe. The Nifty IT index trades at a Price to Earnings (PE) ratio of 26.2 times, lower than its five-year average PE of 29.67. It provides exposure to liquid and large IT stocks, with the top five holdings – Infosys, TCS, HCL Tech, Tech Mahindra and Wipro – accounting for 78% of the index. Analysts are optimistic about large Indian IT companies’ ability to navigate this uncertain phase, given their strong past track records. “IT companies are actively navigating the dual impact of AI: the productivity threat from automation potentially affecting current revenues, and the massive opportunity to capture new revenue streams from AI implementation projects,” says Hari Shyamsunder, VP & senior institutional portfolio manager – India Equities, Templeton Global Investments, Franklin Templeton. Shyamsunder believes valuations appear reasonable for the medium term and global corporations will continue to rely on IT service partners for their complex AI ambitions.