MUMBAI--Shares of Infosys Ltd. have risen the most so far this year among India's listed software majors, crossing the 3,000 rupee ($55) mark Thursday for the first time in more than two years, but it may be difficult to maintain the momentum with most software companies trading above targets set by various research houses.
The stock has risen over 29% year-to-date, while sector bellwether Tata Consultancy Services has notched a gain of over 26%. Wipro has risen around 14%, while HCL Technologies has risen about 24%. The S&P BSE IT index meanwhile has outperformed with a gain of over 22% compared with a 0.1% decline in the S&P BSE Sensex since end-December.
BNP Paribas said one of the reasons that these major software companies have outperformed the broader market so far this year is that both foreign and domestic investors had cut their investments in the sector through 2012 due to the global economic slowdown and are now returning to buy these stocks on hopes of improved performance.
The year-to-date rally suggests that investors have increased sector weighting, said BNP Paribas.
Investors seem to be preferring India IT service providers, as they earn their revenue and profits from software services to the U.S. and Europe and haven't been hurt by India's slower economic growth, said BNP Paribas in its research report.
"We were surprised at the lack of opposition to our improving sector view from investors we met in Europe last week," BNP Paribas said in the report.
BNP Paribas said its meeting with investors leads it to believe that Tata Consultancy Services and HCL Technologies are overbought within the software sector, while Wipro is underbought and interest in Infosys is rising.
BNP Paribas is maintaining its Hold rating on both Infosys and Tata Consultancy Services, reflecting its guarded optimism.
It targets Infosys at 3,000 rupees and Tata Consultancy at 1,500 rupees.
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