Nifty IT index tumbles nearly 4% on growth concerns; Infosys down 5%

On Wednesday, shares of TCS, Infosys, Coforge, Tech Mahindra, Larsen & Toubro Infotech, L&T Technology Services and Mindtree were down in the range of 3 per cent to 5 per cent

Shares of information technology (IT) companies were under pressure as Nifty IT index tumbled nearly 4 per cent in Wednesday’s intra-day trade amid fears of slowdown in the US.

On Tuesday, US markets shuddered with technology shares taking the biggest hit, after data showed monthly consumer prices rise unexpectedly in August, which cemented bets of a third straight 75-basis-point rate hike from the Federal Reserve next week. CLICK HERE FOR FULL REPORT

Back home, Nifty IT index plunged 1,077 points or 3.7 per cent to 28,040 points on the NSE in Wednesday's intra-day trade. At 11:00 am; the IT index, the top loser among sectoral indices, was down 3.4 per cent, as compared to 0.7 per cent decline in the Nifty50 index.

Tata Consultancy Services (TCS), Infosys, Coforge, Tech Mahindra, Larsen & Toubro Infotech, L&T Technology Services and Mindtree were down in the range of 3 per cent to 5 per cent.

The expenditure on technology products and services by IT and prospective clients fluctuates on several factors, like economic, geo-political, monetary and fiscal policies, and regulatory environment.

In the April-June quarter (Q1FY23), operating margins of IT companies were dented due to wage hikes rolled out in the quarter, supply side challenges, increase in sub-contractor expenses, and travel & visa related expenses.

"The companies mention about weakness in a few pockets as far as tech spending is concerned due to some impact of macro headwinds. The weakness largely pertains to banking, financial services and insurance (BFSI) and retail verticals. However, it is also heartening to see no downward revision in revenue growth guidance in FY23 by any of the companies," analysts at ICICI Securities said.

However, analysts reckon that though margins bottomed in Q1, medium-term tailwinds of normalisation in attrition/sub-con, utilization and pricing exists from here on.

"IT index P/E multiples are down 30 per cent year-to-date (YTD), with earnings cut of around 5 per cent. While the P/E de-rating was led by macro risk on growth (FY24E), earnings cuts were driven by margin cuts as lead-lag between growth and operating structure normalize," analysts at HDFC Securities said.

Meanwhile, BFSI, the largest revenue driver for most Indian IT companies, was in the range of 16.7-53.4 per cent in Q1FY23.

“An economic slowdown or other factors may affect the economic health of the United States, the United Kingdom, the European Union (EU), Australia or those industries where our revenues are concentrated. Our clients may operate in sectors which are adversely impacted by climate change, which could consequently impact our business and reputation,” Infosys said in FY22 annual report.