Analysts say information technology stocks may remain under pressure in the near future amid deteriorating economic conditions in key global markets and volatility in financial markets. While the country’s largest software exporter TCS on Friday reported a 5.2 per cent rise in net profit for the June quarter, kicking off the latest earnings cycle, IT stocks fell, with BSE information. technology So far this year, the index has lost nearly 24 per cent.
Analysts believe that higher wage growth as a result of cross-currency headwinds and massive talent churn could also add to the challenges, especially in terms of the impact on operating margins. While it is too early to draw conclusions, the ongoing political developments in the United Kingdom, where Indian-origin Rishi Sunak has thrown his hat in the ring to become Prime Minister, are also being closely monitored. Sunak is the son-in-law of Infosys co-founder NR Narayana Murthy.
Aditi Patil, Research Associate at brokerage firm Prabhudas Lilladher said, “The macro environment in the US and Europe is showing signs of deteriorating. IT sector will be affected. IT stocks may remain under pressure. Reflecting the downside, five IT components of the 30-share benchmark Sensex have lost up to 43 per cent this year.
Tech Mahindra has fallen 42.68 per cent so far in 2022, while Wipro is down 41.38 per cent and HCL Technologies is down 25.38 per cent. TCS and Infosys, IT declined by 12.63 per cent and 19.87 per cent respectively. BSE information so far in 2022 technology The index has lost 9,046.44 points or 23.90 per cent. It had hit its 52-week low of 26,827.24 on June 17 this year. It reached its all-time high of 38,713.3 on January 17.
So far this year, the Sensex has lost 3,771.98 points or 6.47 per cent. It hit its 52-week low of 50,921.22 on June 17. Tanushree Banerjee, co-head of research, Equitymaster, said IT companies may face some margin pressure in the near term on account of cross-currency headwinds, vendor consolidation and captive exposure. Monetization efforts will help in gaining market share.
“The outlook for the long term remains good as the deal pipeline remains strong,” Banerjee said. Last week, rating agency Crisil said in a report that the information technology services sector will see a sharp decline in revenue growth of 12-13 per cent in FY12 from 19 per cent in FY12.
Apoorva Prasad, VP for Institutional Research – IT, HDFC Securities said there is a high potential for double-digit growth results for the IT sector in the medium term and the structural drivers are more than any macro variability. “The risk-reward is favorable for Tier-1 IT as the current valuation implies a marginal growth rate; Also, mid-tier IT will maintain its growth premium. We have a constructive stand on the IT sector,” Prasad said.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said IT stocks are now highly valued after the recent sharp fall. “However, there are concerns arising from a possible slowdown in the US and a sharp slowdown in other key markets,” he said, adding that TCS’ first quarter results indicate good revenue position but margins are under pressure due to salaries. Increase for employees.
Noting that IT stocks are likely to remain under pressure, Aditi Patil said, “I am confident that for the coming results (of other IT companies), there will be no positive surprises… Stock prices will remain under pressure. IT stocks are likely to decline further from this level. TCS Managing Director and CEO Rajesh Gopinathan, while announcing the quarterly results on Friday, indicated that this is the bottom line of margins due to a drop in annual pay hikes and promotions, at a time when countries like the US are about to face recessionary pressures. Expressing concern, Gopinathan, which is the largest market for TCS, had said that it is surveying customers to look for early signs of softening in demand for its services.
“We are seeing steady demand from our immediate interactions with customers in the short to medium term. So, all the projects that are currently underway, pipeline conversions… all these indicate a stable demand environment,” he had said. “In senior level discussions, there is a growing discussion about slowdown, which is no different from what you and I are reading in the newspapers. We don’t see an immediate impact of this on our demand side. From a pipeline perspective also, the construction of the pipeline is quite strong and the nature of deals also remains strong,” he had said.
The current depreciation in the rupee, and strong demand for new-age technologies such as artificial intelligence, cloud computing and Internet of Things, will help the USD 220 billion-plus sector sustain double-digit growth, according to a Crisil report.
,
read all breaking news, today’s fresh newswatch top videos And live TV Here.