IT stocks hold the key to push Nifty above 50,000

India’s mushrooming technology sector is all set to chip in and dominate the country’s stock market.

According to data from trade association Nasscom, the sector’s revenue reached $254 billion in the year ending March 2024, with exports touching $200 billion. Management consulting company Gartner, meanwhile, predicts India’s IT spending to grow 12.2% to $146 billion in 2024 and $203 billion by 2028.

The country’s tech sector has seen significant growth with key innovations in line with market demand. However, it is yet to fully realize its potential and relevance in the larger stock market. If one were to look west and observe how the stock market is doing in the US, this boom in tech would bode well for India.

Major product companies such as Alphabet, Amazon, Apple, Microsoft, Meta, and Nvidia have soared in the US stock market, whose continued product-focused growth has translated into significant efficiencies and higher revenues. Stocks in the country’s technology sector have outperformed the S&P 500 on a year-to-date basis, with the tech-heavy Nasdaq Composite gaining more than 22% over the same period.

It’s no coincidence that the technology heavyweights that dominate the US market also enjoy near-total monopolies in their respective categories, and command massive consumer traction.

Nvidia alone has seen a breakthrough performance thanks to strong demand for its generative AI computing solutions, with its stock up more than 190% since the start of 2024. On October 25, Nvidia’s stock market value briefly touched $3.53 trillion, slightly more than Apple. It was $3.52 trillion due to high demand for its supercomputing AI chips. Alphabet, Google’s parent company, has witnessed a similar growth trajectory with its share price jumping over 170% in the last five years. Google has 90% market share in search engines. Meanwhile, Apple, the world’s second largest smartphone maker – 16% market share as of Q2 2024 – has seen its share price rise ~280% in five years.

The combined market cap of the US technology sector is $21.12 trillion, while the total US market cap is $55 trillion. Apple has a market cap of $3.6 trillion and is on track to cross the $4 trillion mark. In comparison, the NSE has a market cap of around $5.21 trillion, while the Nifty India Digital Index is ~$655.87 billion.

This is a perfect opportunity that awaits India.

The strength and health of the US technology sector undoubtedly offers a blueprint for India, a country with a strong IT sector and a growing tech startup ecosystem.

The Indian IT sector accounts for 13% of the Nifty 50 with six stocks, mainly service-based companies. In comparison, the Nasdaq Composite in the US allocates 50% to manufacturing companies.

However, legacy IT companies in India are starting to mix things up. A blended approach to products and services is becoming popular.

Tata Consultancy Services, the country’s largest IT company, is diversifying its operations to enter businesses like artificial intelligence, IoT and semiconductor chip design. Meanwhile, Infosys, the second largest company in the industry, is investing and collaborating with startups through its Infosys Innovation Fund. TCS now has $1.5 billion worth of AI and generative AI projects in the pipeline, with Infosys joining with 225 generative AI projects. Wipro, meanwhile, is also investing in AI-focused startups.

While Indian technology giants stamp their authority on new tech, burgeoning startups are rapidly expanding the technology landscape in India. Favorable policy incentives, steady investor interest and growing consumer demand encourage entrepreneurship.

The Department for Promotion of Industry and Internal Trade has recognized over 31,000 technology startups by the end of March 2024. According to NASSCOM, nearly 1,000 new technology startups are expected to become operational in 2023, cementing India’s reputation as the third largest technology startup hub globally. The continued growth of listed technology companies like InfoAge, JustDial and Zomato demonstrates immense value sustainable digital businesses with strong product-market fit in the equity market.

In the next five years, technology stocks are likely to make up nearly 50% of the Nifty, pushing the index past the 50,000 mark.

Advanced technologies such as generative AI have made meaningful digital interventions possible, which can enhance a country’s technological prowess. Global accounting firm EY estimates that India could add $359-438 billion to its GDP by 2029-30 by adopting generative AI-enabled technologies.

Ultimately, the contribution of IT companies to the country’s global dominance cannot be overstated. As India’s core technology sector becomes increasingly populated with startups, product-led businesses and large venture capital-backed startups—Swiggy, Ather Energy and Bluestone—closer to IPOs, the industry is poised to drive the next phase of India’s economic growth. is

The convergence of traditional IT companies and product-innovation-driven startups will boost India’s efforts to become a holistic global technology leader. Continued investment in innovation, research and technological entrepreneurship will propel India to the global pinnacle of technological success. The country’s insatiable appetite for technology products and services and the fast pace of the IT sector matching international levels of innovation and competitiveness will bring about a sea change in tech’s contribution to the Nifty 50. A tech-tonic shift towards product innovation will revitalize India’s tech scene.

(The author Arun Chaudhary is Director and Chief Business Officer at M, Stock by Mirre Asset Capital Markets. Views are his own)