IT stocks decline amidst growth concerns pulls Indian equity benchmarks

The decline in IT stocks amidst concerns about growth prospects pulled Indian equity benchmarks on Wednesday. Investors were also jittery ahead of releasing a bunch of data this week that could show whether wagers on interest-rate cuts this year are justified.

The benchmark Sensex fell 536 points or 0.7 per cent to end the session at 71,357. The Nifty ended the session at 21,517, a decline of 148 points or 0.7 per cent.

Brokerages have been advising their clients to tread cautiously while taking positions in IT stocks, citing weakness in discretionary demand.

"We believe the void created by a lower number of small-sized and discretionary projects along with delays in client decision-making and ramp-up of won projects in certain cases will lead to revenue weakness in the near term and 'sticky' nature of costs will delay a significant improvement in margin," said Nomura in a note.

BNP Paribas, in its note to investors, said it expects earnings before interest and taxes (EBIT) margin to fall quarter on quarter (q-q) for most of its coverage companies due to wage hikes, furloughs and one-time impacts.

"We would look for signs of a demand pick-up and updates on the timelines of large deals ramping up in management commentary," the note added.

The Nifty IT posted its biggest single-day decline in six months and ended the session at 34,395, a decline of 2.5 per cent.

A bit of profit booking was seen ahead of the release of key data points, including the Eurozone PMI and US initial jobless claims.

"We expect the market to consolidate and take a pause before the quarterly results start, leading to more stock-specific action," said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

The market breadth was favourable, with 2,137 stocks advancing and 1,706 declining. More than two-thirds of Sensex stocks declined. Foreign Portfolio Investors were net sellers to the tune of Rs 666 crore. HDFC Bank, which declined 1.5 per cent, and Infosys, which fell 2.9 per cent, were the biggest contributors to the Sensex's decline.