New Delhi, April 3: Sentiment towards India's IT services sector has turned more negative amid rising global uncertainties, although investors remain hesitant to make strong directional bets, a report said on Friday.
BNP Paribas India said in its report that while uncertainty has increased, investors – particularly hedge funds – are avoiding clear market calls and are instead reducing exposure by trimming positions based on specific factors.
The report noted that recent volatility, including rapid reversals in US trade tariff policies, has made investors cautious about taking aggressive positions.
However, sentiment towards India has weakened, with concerns emerging over potential earnings pressure due to limited availability of liquefied natural gas (LNG), it said.
"While volatility in crude oil is being seen as a temporary shock, the persistence of LNG supply constraints is viewed as a more structural risk for Indian companies," the report said.
The report pointed out that while bearishness on the sector remains, near-term pessimism may have bottomed out.
However, long-only investors remain sceptical about long-term growth prospects, with some factoring in scenarios of margin compression. At the same time, investors see potential opportunities in the sector if the cyclical trough and outperforming companies are correctly identified.
"Even bearish investors acknowledge that the sector could see near-term earnings upgrades driven by favourable foreign exchange movements," it said.
On positioning, the report said that amid elevated uncertainty in other sectors, the IT sector is currently viewed as relatively attractive, supported by rupee depreciation. However, it cautioned that this positioning could reverse if geopolitical tensions in the Middle East ease quickly.
Since the US-Israel-Iran war began on February 28, the Nifty IT index has declined 0.53 per cent to 30,441.45. Over the past one year, the technology index has fallen more than 10 per cent.
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