All Nifty IT stocks declined in the last 1 month amid macro concerns; what should investors do?

Updated: 15 Mar 2023, 04:05 PM IST

Between January 1, 2020, and March 31, 2022, the Nifty IT index rose by approximately 144 percent, while the Nifty 50 index climbed by 44 percent. However, since March 2022, the index has shed 21 percent till date.

Since March 2022, the Nifty IT index has fallen 21 percent.

All stocks in the Nifty IT index have given negative returns in the last 1 month. The Nifty IT index has fallen 7 percent in the last 1 month as against a 6 percent decline in benchmark Nifty.

The IT sector has been on a downward trend in the last 1 year after a massive surge post the COVID pandemic. Between January 1, 2020, and March 31, 2022, the Nifty IT index rose by approximately 144 percent, while the Nifty 50 index climbed by 44 percent.

However, since March 2022, the index has shed 21 percent.

Nifty IT one month trend

According to brokerage firm Nirmal Bang Equities, this enormous outperformance of Nifty IT was caused by pandemic-driven digital transformation (DT) services-based earnings acceleration and substantial multiple expansion on unprecedented monetary stimulus in the US/Europe.

However, the sharp run-up in inflation globally, and the resultant aggressive monetary policy actions by central banks in the developed economies (the major market for IT companies) to contain inflation resulted in recessionary expectations gradually gaining ground.

"The expectations of a slowing economy transforming into lower digital spending were reflected in the price performance of domestic IT companies. The high attrition rates and cross-currency movements (while the rupee depreciated against the dollar, it appreciated against other global majors such as GBP and Euro) created margin pressures. The double whammy of risks to revenue, as well as margin, has led to valuations easing in the IT space," explained Emkay in another report. This raises the likelihood of unfavourable fundamental shocks over the next 12 to 18 months.


All stocks in the IT index were in the red in the last 1 month. Mphasis lost the most, down 16 percent followed by Infosys, which fell 11 percent.

Meanwhile, TCS, Persistent Systems, Coforge, Wipro, and LTIMindtree shed between 7 percent and 10 percent in this period. L&T Tech, HCL Tech and Tech Mahindra were also down between 1 and 5 percent in the last one month.

In the last 1 year as well, only Persistent Systems was in the green, up 2 percent. Mphasis and Wipro tanked the most, down 39 percent and 37 percent, respectively in the last 1 year. LTTS, Infosys, LTIMindtree, and Tech Mahindra also lost over 20 percent each in this period.

However, in the last 3 years, the majority of the Nifty IT stock delivered multi-bagger returns. Persistent Systems topped the list with over 650 percent returns while Coforge and LTIMindtree surged over 200 percent each. LTTS Mphasis, Infosys, HCL Tech and Wipro rose between 100 percent and180 percent each, whereas TCS and Tech Mahindra advanced 89 percent and 84 percent, respectively.


Vinod Nair, Head of Research at Geojit Financial Services, noted that the IT sector was the biggest business beneficiary and stock market performer during the COVID period. This high growth reduced in the post-COVID period, leading to weak performance.

"The current weak global cues following the default of Silicon Valley Bank, a leading lender of start-ups in the U.S., triggered concerns over the banking system, the funding of start-ups, and the US economy. India's IT industry has high exposure to the US economy and BFSI sector, leading to a sell-off. However, the current uncertainty is on US small to medium banks, and relief measures announced by the Federal Reserve are expected to moderate the concern. The future outlook of the US economy is stable, and a slowdown in start-ups is unlikely to affect the giant Indian IT sector," explained Nair.

The ongoing sell-off can be used as an opportunity by long-term investors because the outlook is intact as the decent amount of correction is attractive, he advised investors. In terms of valuation, the sector has corrected heavily from extreme peak levels to just above its long-term range, he added.

Emkay also believes that given the near-term headwinds, investors should invest in the space in a gradual manner with a minimum horizon of 3 years.

Meanwhile, brokerage firm Kotak prefers stocks that offer good growth potential and can participate in both discretionary spending as well as cost take-out initiatives of clients and are available at reasonable valuations.

First Published: 15 Mar 2023, 04:05 PM IST