Investors shift bets from IT to bank stocks

Mumbai: Investors are shifting bets to banking stocks from the underperforming IT counters as the street expects Indian lenders to benefit from the economic recovery. In contrast, IT stocks are seen set for de-rating led by concerns over a US downturn that has prompted analysts to cut growth estimates, while margins are expected to be under pressure.

So far, in 2022, the Nifty IT index has declined 28%, while the Nifty Bank gained 16% to an all-time high on Thursday. The Nifty has risen 3% in this period and is about 4% away from its record high.

"The banking sector is seeing good interest after an underperformance in the past 2-3 years. Robust earnings growth coupled with improving credit growth and clean-up of asset quality along with reasonable valuations is helping the sector," said Gautam Duggad, head of research, Motilal Oswal Financial Services. "In IT, concerns around a US recession and continued interest rate hikes are souring the sentiments."


In 2021, the Nifty IT index surged 60%, while the Nifty Bank index gained 13%. The Nifty jumped 24%.

Foreign portfolio investors' (FPIs) investments in the IT sector declined 26% since April this year to ₹5.11 lakh crore from ₹6.90 lakh crore. In contrast, their assets in the financial services sector rose 11% to Rs 15.19 lakh crore during this period.

The top five IT stocks - TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra - plunged 16% to 42% so far in 2022, whereas the top five banks' stocks have gained by 3-24% in this period.

"With credit growth picking up and asset quality issues behind us, it is time for the banks to play catch-up. We expect banks to lead the next leg of the rally along with auto and engineering sectors," said Gaurav Dua, head - of capital market strategy, Sharekhan.

"On the other hand, the IT sector could remain a laggard in the immediate future, but it would be an opportunity to buy with a view of 24 to 30 months."

According to Vinod Nair, head of research at Geojit Financial Services, the Nifty Bank index is still attractive and trading marginally above the long-term averages even after factoring in the current rally. "We continue to have a strong long-term outlook for the banking sector, especially for large private banks."