IT shares under pressure on Covid-19 outbreak; TCS, Wipro hit 52-week lows

Infosys, Tech Mahindra and HCL Technologies were down in the range of 5 to 6 per cent in early morning trade today.

Shares of information technology (IT) companies were under pressure on Wednesday with sector giant Tata Consultancy Services (TCS) and Wipro hitting their respective 52-week lows on the National Stock Exchange (NSE) in the early morning trade on concerns over potential impact from COVID-19 (Coronavirus).

Nifty IT index, the top loser among the key sectoral indices, too hit its 52-week low of 14,356, down 3.4 per cent on the NSE. The index was at its lowest level since January 15, 2019, when it had touched 14,262 points in the intra-day trade. In comparison, the benchmark Nifty50 index hit an intra-day low of 10,334 points, down 1.1 per cent.

Among the individual stocks, TCS hit a 52-week low of Rs 1,920, down 2.6 per cent, while Wipro slipped 5 per cent to Rs 204 on the NSE. Infosys, Tech Mahindra and HCL Technologies were down in the range of 5 per cent to 6 per cent in early morning trade today.

Analysts at JP Morgan believe IT services firms have not seen direct impact of the virus so far, but risks to “business-as-usual” delivery of said services are increasing as virus infection spreads to more countries.

"Various enterprise clients are increasingly restricting or might restrict domestic travel. Assuming the virus impact continues to spread, we believe clients could increasingly have consultants work from home, but could also cut/delay deployment of new consultants," the brokerage firm said in IT and BPO services sector update.

The brokerage firm further said, uncertainty and potential disruption from COVID-19 could lead clients to delay decision making and push back new project starts and outsourcing initiatives. Moreover, potential travel restrictions could delay new project awards wherever final outsourcing decision is contingent upon travel.

"Many client industries are going to incur lower earnings in C1H or this year, due to direct impact to their businesses (e.g. various travel clients have cut expectations). We believe IT buyers could respond to lower earnings (or revenue) by cutting discretionary IT services projects, which could hurt 2Q/3Q growth rates across various firms," it added.

At 09:54 am, TCS erased its early morning losses partially and was trading 1 per cent lower at Rs 1,954 on the NSE.

The company announced that its board has declared an interim dividend of Rs 12 per equity share. The interim dividend shall be paid on Tuesday, March 24, 2020 to the equity shareholders of the company. It has fixed March 20, 2020 as the record date for the purpose.