IT Stocks Defy a Weak Open as Morgan Stanley Bets on Persistent and Hexaware

October's first trading session opened with a split screen on Dalal Street. The headline indices slipped as soon as the bell rang, but one sector refused to follow: information technology. The Nifty IT index climbed as much as 1.71% to an intraday high of 28,178.60 in the first half hour, even as the broader market leaned into the red.

The BSE Sensex opened at 72,192.89, down 287.40 points or 0.40%, and the NSE Nifty 50 started at 22,543.70, lower by 76.75 points. Both recovered a little in the opening minutes, with the Nifty hovering around 22,555 shortly after 9:20 am.

A brokerage call that changed the mood in IT

The trigger for the IT outperformance was a fresh research initiation from Morgan Stanley. The brokerage began coverage of Persistent Systems and Hexaware Technologies with Overweight ratings, arguing that mid-sized "challenger" IT firms are better placed than the largest incumbents to capture growth as artificial intelligence reshapes how companies buy technology services. Its case rests on stronger growth visibility and a wider addressable market for nimbler players.

The note was not unqualified praise. Morgan Stanley flagged that Persistent's integration of a large acquisition could test its execution over the next two years. Even so, Persistent rose about 1.5% to around Rs 5,356 in early deals.

The buying spread well beyond the two names. Infosys gained as much as 2.5%, Tech Mahindra about 2%, TCS around 1.6% and HCL Technologies roughly 1.4%. Among mid-tier names, Mphasis jumped as much as 3.56% and Coforge rose about 2.4%. Kotak Mahindra Bank, up nearly 2.5%, joined the IT majors near the top of the Sensex gainers' list, and the Nifty Private Bank index added about 0.7%.

Where the selling landed

The weakness was concentrated in automobiles, healthcare and the broader market. The Nifty Auto index fell between 1.4% and 2% in the opening half hour as investors digested September sales numbers, with Mahindra & Mahindra among the heaviest Sensex laggards. The Nifty Healthcare index lost about 1.2%, while cement, realty and oil and gas stocks also slipped. The Nifty Midcap 150 and Smallcap 250 were each down a little over 0.5%, and the India VIX edged up 1.6% to 13.71.

The yield problem that will not go away

The bigger backdrop is a bond market in the United States that keeps pulling money out of emerging markets. The US 10-year Treasury yield has climbed to roughly 5.3% and the 30-year yield is at a 24-year high, despite August PCE inflation easing to 3.4%. Foreign institutional investors sold Indian equities worth about Rs 20,128 crore over the previous two sessions, according to Geojit Investments' V K Vijayakumar, who expects that pressure to persist while yields stay this high. One cushion is crude: Brent was trading near $97 a barrel, well below the $106-108 levels of last week.

Levels traders are watching

Analysts at HSL Prime Research identified 22,569, the recent swing low, as the line to watch; a sustained break could open the way towards 22,200, while a recovery needs a decisive move above the 23,000-23,100 band. Axis Direct places immediate support at 22,500 and sees the undertone staying subdued as long as the Nifty trades below 22,800. US jobless claims and ISM manufacturing data later today are the next global cues.

For IT investors, the takeaway from the morning is that a sector-specific catalyst can still override a weak tape, at least for a session. Whether the challenger-versus-incumbent thesis holds will depend on the September-quarter results that begin later this month.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.