Indian IT stocks hit decade-high dividend yields. Is it the right time to buy? – Here’s what experts say
India’s IT sector is entering the Q1 earnings season with investor interest at a low ebb and valuations at their most attractive levels in years.The Nifty IT index has plunged over 10% so far in 2025, dragging down marquee names like TCS, Infosys, Wipro, and HCL Tech. Yet, dividend yields across top IT firms have now reached decade-highs, setting up a potential contrarian play for investors.As per ET, foreign institutional investor (FII) ownership in IT services has dropped to a 13-year low, and domestic institutional interest has also weakened. “Such low ownership has historically been a catalyst for outperformance,” BNP Paribas analyst Kumar Rakesh was quoted as saying, adding that current levels suggest “excessively bearish sentiment.”TCS, which will kick off the earnings season on July 10, has seen its stock fall 17% in 2025. But it now offers a 3.7% dividend yield, surpassing its five-year peak of 3.6%. Infosys and HCL Tech yield 3.2% and 3.7% respectively, while Wipro stands at 3.4%. BNP Paribas sees this as offering “downside protection to valuation.”The earnings season could prove pivotal. HSBC expects modest sequential growth of 0–1% in constant currency terms, which could signal a bottoming out of the earnings cycle.Cross-currency tailwinds—due to dollar weakness—are also expected to boost Q1 estimates by 100–200 basis points, as per Motilal Oswal.Brokerages are positioning accordingly. BNP Paribas has added Infosys to its top large-cap picks alongside TCS, while favouring HCL Tech and Persistent Systems. It downgraded LTIMindtree and flagged Wipro for “significant underperformance risk.”Nomura remains bullish on Infosys, Coforge, and eClerx, while Kotak Equities favours Infosys, Tech Mahindra, and mid-caps like Coforge and Indegene. Coforge is widely seen as a standout, with several analysts expecting strong quarterly growth. “LTIMindtree could also benefit in an improving environment,” said BNP Paribas.However, structural shifts in the sector are making investors more cautious. “Top-tier IT companies are no longer buy-and-hold compounding stories,” HSBC warned, adding that “stocks will be a lot more cyclical going forward.”Despite challenges like US tariff risks and sluggish discretionary spending, analysts are seeing early signs of stabilisation. “Client enthusiasm for serious GenAI productivity projects is rising,” said Motilal Oswal, as per the report.The anticipated US Fed rate cuts, coupled with a seasonally strong first half of FY26 and improving deal win rates, could support a turnaround.With valuations now considered “palatable,” the coming earnings season could determine whether IT stocks can recover lost ground and reassert leadership on Dalal Street.(Disclaimer: Recommendations and views on the stock market and other asset classes given by experts are their own. These opinions do not represent the views of The Times of India)
