Nifty IT ETFs: A Long-Term Investment Opportunity Amidst Uncertainty

Long-term investors may consider investing in Nifty IT Index Fund or Nifty IT ETF due to the sector's underperformance, high margin of safety, and dividend yield of 3.1%. Wealth managers suggest staggering bets over 2-3 months as the IT sector's decline has opened a window of opportunity for investors with higher risk appetite. The Nifty IT index trades at a PE ratio of 25.2, below its five-year average, and offers exposure to big Indian software exporters.

Long-term investors with a higher risk appetite may find opportunities in the Nifty IT Index Fund or Nifty IT Exchange Traded Fund (ETF), according to wealth managers. The IT sector's recent underperformance has created a window of opportunity, with the Nifty IT index trading at a price-to-earnings (PE) ratio of 25.2, below its five-year average of 29.74 [3]. The sector's high margin of safety and attractive dividend yield of 3.1% further strengthen the case for investment [3].

The Nifty IT index has slumped 32% from its December 2024 peak and is down 15.53% over the past year, even as the benchmark Nifty gained 3.28% in the same period [3]. Over three years, the IT gauge has delivered a 7.1% return, lagging the Nifty's 12.9% gain [3]. Fund managers suggest staggering investments over the next 2-3 months to capitalize on the sector's potential recovery [3].

The IT sector's decline has been driven by concerns over slowing growth, stretched valuations, and the potential disruption from artificial intelligence to business models. Additionally, tariff concerns and muted guidance from IT majors have further soured investor sentiment [3]. However, the sector's exposure to big Indian software exporters, such as Infosys, TCS, HCL Tech, Tech Mahindra, and Wipro, which make up 78% of the index, offers potential upside [3].

The Nifty IT index's dividend yield of 3.11% marks the bottom for most corrections, and rupee depreciation of 5% since May and 15% against the Euro can boost earnings [3]. Nikhil Ranka, CIO Equity Alternatives at Nuvama Asset Management, expects acceleration in IT budgets for the third and fourth quarters, driven by a talent crunch in the US and low probability of H1B visa restrictions [3]. Ranka estimates the potential upside for IT companies at 10-15% [3].

Investors should consider the risks associated with high-risk investments, such as the Nifty IT Index Fund or ETF. While the sector has shown impressive long-term growth, it is also vulnerable to market volatility and sector-specific risks. However, with the right risk management strategies, long-term investors may find opportunities in the Nifty IT Index Fund or ETF.

References
[1] https://upstox.com/etfs/icicipramc-icicitech-share-price/INF109KC16I6/
[2] https://www.ainvest.com/news/volatility-shares-2x-xrp-etf-amplifies-daily-performance-ripple-2508/
[3] https://m.economictimes.com/mf/analysis/can-staggered-investments-in-nifty-it-etfs-lead-to-long-term-gains/articleshow/123374309.cms