Following a strong second-quarter finish, the Nifty and Sensex both began the third quarter on a sour note, falling nearly 1% in early trade on Monday after reports showed that OPEC+ will consider oil cuts of over 1 million barrels per day from next week, in what would be the biggest move since the COVID-19 pandemic to address oil market weakness.
At 11:15 p.m., the Nifty 50 fell 0.73 percent, or 126 points, to 16,968.8, while the S&P BSE Sensex fell 496.87 points, or 0.87 percent, to 56,904.22. The India VIX also rose 6.89% to 21.34 levels. Among sectoral indices, including Nifty consumer durables, Nifty IT, and Nifty Metal, Nifty Bank, and Nifty FMCG, were all down 1–2% in Monday's trade.
IT stocks are continuing their bearish trend due to mounting recession fears, rate hikes from major central banks, and downgrades from global brokerage firms. Several global brokerage firms have reduced their target prices for Indian IT stocks multiple times in 2022.
In post-June quarter numbers, global brokerage firm JP Morgan downgraded all of its "overweight" stocks in the IT sector to "neutral" and maintained its "underweight" position in the sector.
The Nifty IT index fell 1.10% to 26,688.40 points in Monday's trade. Among the components of the Nifty IT Index, Mphasis (down 3.42%), L&T Tech (down 1.73%), HCL Tech (down 1.58%), Mindtree (down 1.74%), and Coforge (down 1.51) were the top losers in the IT Index. Among other losers were L&T Infotech (down 1.14%), TCS (down 0.50%).
Ever since analysts predicted a potential recession in the US, the UK, and the Euro Zone, the value of IT stocks has started beating down. The Nifty IT index stands as the worst-performing index among all NSE indices so far in 2022.
The year 2022 did not start well for the IT sector, as it fell 10% in January and 2.80% in February. In the last three months, the index has dropped approximately 1,200 points, falling to 26,600.30 from 27,843.35. Further, the IT index has dropped 32.30% from a record high of 39,446.70.
Meanwhile, four blue-chip IT stocks, including bellwether Infosys, Wipro, TCS, and Tech Mahindra, are trading close to their 52-week lows with a difference of 2–4%. Infosys is down 26.06 percent year to date, Tech Mahindra is down 43.86 percent, Wipro is down 45 percent, and TCS is down 2.10 percent.
The continuous rate hikes by the US Fed, as well as the scarcity of gas, which is pushing European countries to the brink of recession, have had a negative impact on Indian IT stocks, as major Indian IT companies derive 40-70% of their revenue from the US and the Eurozone, implying that any slowdown in these economies will translate into fewer deals for Indian IT businesses.
For context, the June quarter witnessed a sequential decline in deal wins across IT companies barring Mindtree (+46.2% QoQ US$) and Coforge (+4.7% QoQ US$), ICICI Securities said in a research report.
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