IT shares under pressure as rupee hits 2-month high; Nifty IT index dips 3%

Shares of information technology (IT) companies were under pressure on Wednesday, with Nifty IT index falling 3%, as the rupee hit a two-month high against US dollar a day earlier. Tata Consultancy Services (TCS), Infosys, HCL Technologies, NIIT Technologies, Wipro, Tata Elxsi, Tech Mahindra and Mindtree from Nifty IT index were down in the range of 2% to 3% on the NSE.

Among the non-index stocks, Larsen & Toubro Infotech, Sonata Software, KPIT Technologies, Zensar Technologies, Hexaware Technologies, L&T Technology Services, Persistent Systems and Mphasis slipped between 2% to 5%.

At 09:56 am; Nifty IT index, the largest loser among sectoral indices, was down 3% at 13,850, as compared to 0.42% decline in the Nifty 50 index. Thus far in November, the IT index has underperformed the market by falling 7%, as against 2.2% rise in the benchmark index.

The rupee rose by 21 paise to end at 71.46 against the US dollar Tuesday, its highest level since September 3, 2018, on increased selling of the greenback by exporters amid softening crude oil prices, and persistent foreign fund inflows. In the last six trading sessions, the rupee has gained 143 paise, while thus far in November, the currency gained 3.3% or 250 paise. Money and forex markets are closed today for 'Eid-e-Milad'.

Meanwhile, analysts at Nirmal Bang believe growth for IT sector will be dispersed in FY19 with TCS leading the pack. At the current levels, they prefer large-cap IT stocks over their mid-cap peers.

“In our coverage universe, we believe only TCS will witness any material pick-up in organic revenue growth in the Tier-1 space. We prefer large-caps over mid-caps at current valuations. Mid-caps may witness faster growth pick-up on a low base in FY19 (and from bombed-out margins in some cases), but would advise investors to focus on sustainability and not overpay for a riskier business model. Current valuations of mid-cap stocks factor in strong growth over a two to three-year time frame - which we believe is unlikely,” the brokerage firm said in sector report dated November 12, 2018.

“While we expect mid-cap IT companies to outpace larger IT companies in the short run, we expect higher growth rates for large-cap IT companies in the medium-to-long run. As digital deal sizes rise, we expect enterprises to shift from mid-cap to large-cap IT companies on scale benefits and better execution. Also, with sustained rise in demand for IT services and higher protectionist rhetoric, mid-cap companies may find it difficult to retain talent. Accordingly, we prefer large-cap IT names along with ER&D players,” analysts at Edelweiss Securities in report called ‘India Strategy 2019’.

COMPANY	LATEST	PREV CLOSE	LOSS(%)
L & T INFOTECH	1495.50	1584.50	-5.62
SONATA SOFTWARE	307.25	319.40	-3.80
KPIT TECH.	198.15	205.75	-3.69
INFOSYS	617.50	641.10	-3.68
TAKE SOLUTIONS	134.10	138.90	-3.46
TCS	1815.30	1877.75	-3.33
TECH MAHINDRA	687.30	709.35	-3.11
MINDTREE	809.45	833.95	-2.94
TATA ELXSI	961.70	988.95	-2.76
FIRSTSOUR.SOLU.	51.50	52.95	-2.74
HCL TECHNOLOGIES	983.85	1011.50	-2.73
ZENSAR TECH.	230.90	237.35	-2.72
PERSISTENT SYS	538.00	551.05	-2.37
NIIT TECH.	1083.35	1109.05	-2.32
HEXAWARE TECH.	302.50	308.60	-1.98
L&T TECHNOLOGY	1481.10	1511.05	-1.98
MPHASIS	907.05	925.20	-1.96
CYIENT	627.30	637.95	-1.67
WIPRO	316.65	321.70	-1.57