IT stocks are in favour for the same reason that consumer staples seem to be out of favour

Growth predictability arising out of adoption of digital technology has pushed up valuation of software companies  


Lately, who’s been leading digital transformation at your company? (a) CEO (b) CTO or (c) COVID-19?

This is a popular meme doing the rounds and we all know the answer. The spiked virus has driven an axe through the economy — Bloomberg economist Abhishek Gupta noted that in absolute terms, the estimated output loss would be $210 billion in Q1FY21 and $300 billion for the entire fiscal — but it has reshaped the way India Inc works. It has got corporate India working from home, rushing to get on the cloud and spending heavily on digital technology. A recent survey of Fortune 500 companies also indicated that nearly 75% of CEOs intend to accelerate technology transformation. This corporate makeover has cushioned the IT industry from the pandemic knockout.

Impressed with this resilience, investors — both retail and institutional — have flocked to the stocks. Vinay Paharia, fund manager, Union Mutual Fund, says that they are seeing promise in IT companies big and small (“across the capitalisation curve”) and are optimistic about the sector in the medium to long term. Atul Bhole, fund manager at DSP, says, “Under-ownership of IT sector and its relative attractiveness to other sectors given the environment has driven their stock performance in such volatile and challenging times.” The Nifty IT Index is up 34% in 2020 compa


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