IT stocks: Double-digit growth required to justify high valuation multiples

Over the last 3 months, the Nifty IT index has gained a whopping 35 per cent, almost 6 times the rise in the Nifty50

The stellar listing of Happiest Minds Technologies last week once again underlines investors’ focus in IT stocks thanks to the increasing thrust on digital infrastructure because of the Covid-19 pandemic.

In fact, the story isn’t different for established players either. Over the past three months, the Nifty IT index has gained a whopping 36.2 per cent, about 5 times the rise in the Nifty50, which is up 7.4 per cent over the period.

Thus, at 21.5 times financial year 2021-22 (FY22) estimated earnings, the Nifty IT index is currently trading at about 29 per cent premium to the Nifty50. Notably,