IT sell-off snaps markets' 9-day gaining streak; Infosys slumps about 10%

A massive sell-off in technology shares, sparked by the weak quarterly results and revenue growth guidance by Infosys, ended a nine-day winning streak for the Indian stock market on Monday.

After dropping as much as 989 points, the Sensex recouped some of its losses to close at 59,911, down 520 points, or 0.86 per cent — the most since March 13. The Nifty50 index, on the other hand, settled at 17,707, down 121 points, or 0.68 per cent, with the five IT stocks in the index dragging it down by 190 points.

Infosys alone dragged the Nifty down by 138 points and the Sensex by 414 points as its shares plunged 9.4 per cent — the worst single-day decline since October 2019 — after the company’s revenue growth guidance for FY24 came in at a six-year low of 4-7 per cent.

The panic spread to other information technology (IT) stocks as well, with the Nifty IT index dropping 4.7 per cent — the most since May 2022 — to a six-month low. Most analysts rushed to lower their target prices for Infosys and other IT stocks on fears that a recession in the developed world could severely impact the demand for IT services exporters. 

Shares of Tech Mahindra declined 5.3 per cent, HCL Technologies by 2.7 per cent, Wipro by 1.8 per cent, and TCS by 1.6 per cent. Analysts said the revenue hit for IT companies was much steeper than they were expecting, warranting a de-rating.

“The banking crisis in US regional banks and European banks in March 2023 has induced greater caution and could impact the June 2023 quarter,” a note by Kotak Institutional Equities said.

Index heavyweights HDFC and HDFC Bank fell around 1.6 per cent each and also weighed on the market’s performance.

“HDFC Bank’s results were good but the expectation was higher. IT stocks are on a sticky wicket due to the economic distress in the US and Europe. IT majors need to post double-digit revenue growth to justify their valuations and some moderation on that front is inevitable. Moreover, markets were gaining for the last nine sessions and they had to take a breather at some point,” said U R Bhat, co-founder of Alphaniti Fintech.

In the preceding nine trading sessions, the Sensex and the Nifty had gained nearly 5 per cent in what was their longest gaining streak in more than two years. The gains came on the back of robust buying by foreign portfolio investors (FPIs) of close to Rs 10,000 crore.

On Monday, however, FPIs, who have big exposure to the IT sector, sold shares worth Rs 533 crore.

The rise in US treasury yields amid the possibility of further monetary policy tightening also weighed on investor sentiment.

Last week, Federal Reserve Governor Christopher Waller said he preferred more monetary policy tightening to tame high inflation. Waller said financial conditions had not significantly tightened, and the labour market continued to be strong.