A broad-based selloff engulfed the Indian market on September 14, mirroring the global trend as investors were spooked by a hotter-than-expected inflation print in the US which dashed hopes that inflation had peaked and the pace of rate hikes would slow down.
Now widespread speculation is that the rate hike regime will be longer.
Almost all sectors of the market were witnessing selling, but the IT pack was at the front. The Nifty IT index cracked 3.36% with all components in the red. Shares of Infosys, Coforge, L&T Technology Services, Larsen & Toubro Infotech, Tech Mahindra and TCS fell up to 4%.
As the US Fed has started lifting rates aggressively and indicated that this will continue until inflation comes down significantly, the fears of a recession in the US have grown stronger. Since the US is a major market for Indian IT firms, most of them have been suffering losses of late due to worries that their demand will shrink and the margin will fall. Even the rupee's weakness, which is considered a positive for the IT services exporters, has not helped them much.
For example, shares of Infosys hit their 52-week high of ₹1,953.90 on January 17, 2022, and at present, they are about 24% down from that level.
The stock of Wipro is 45% down from its 52-week high of ₹739.85 that it hit on October 14, 2021. TCS is down 23% from its 52-week high of ₹4,043 that it hit on January 17, 2022.
"The growth prospects of the Indian IT companies remain coupled with the markets in the US. Because of the rate hike announcement by the Fed, we need to assess the macro damage that will come through. When the macro is severely disrupted, companies put brakes on their IT spending towards innovation and only the maintenance work will continue. This would be a big risk for Indian IT companies that are already on high valuations," said Arpit Jain, Joint MD at Arihant Capital Markets.
"When the major IT companies declared their results in July, they expected a strong demand pipeline. But in view of the worries around recession in the US and Europe, the clients may look to consolidate their service providers. It may be safer to stay with large-cap stocks in IT if you wish to keep IT in your investment basket," said Jain.
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