scorecardresearchNifty IT stands as the worst performing index so far in 2022

Nifty IT stands as the worst performing index so far in 2022

Updated: 05 Sep 2022, 11:07 AM IST
TL;DR.
Four blue-chip IT stocks, including bellwether Infosys, Wipro, TCS, and Tech Mahindra, are trading close to their 52-week lows. Infosys is down 22.99 percent YTD, Tech Mahindra 40.98 percent, Wipro 42.97 percent, and TCS 16.26 percent.
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.

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.

Indian IT stocks have suffered in recent months, with the Nifty IT index ranking as the worst-performing index among all NSE indices so far in 2022, owing to recession fears, downgrades from global brokerage firms, an FPI selloff, and a rate hike in major economies.

Since the beginning of the year, the index has dropped approximately 10,955 points, falling to 27,745.80 from 38,701 and losing nearly 28.30 percent of its value. Further, the IT index has dropped 29.66% from a record high of 39,446.70. In the same time frame, other major indices, including the Nifty FMCG, Nifty Auto, Nifty Bank, Nifty Realty, Nifty Infra, and Nifty Energy, rallied between 5 and 20%, with the Nifty Auto remaining the top performer with a 20.8% gain.

Four blue-chip IT stocks, including bellwether Infosys, Wipro, TCS, and Tech Mahindra, are trading close to their 52-week lows. Infosys is down 22.99 percent YTD, Tech Mahindra 40.98 percent, Wipro 42.97 percent, and TCS 16.26 percent. Only two stocks, Mindtree and L&T Infotech, have given positive returns.

The year 2022 did not start well for the IT Index, as it fell 10% in January and 2.80% in February. However, the index rallied in March and gave a higher return of 7.29 percent, but failed to hold on to those rallies and fell 23.60% since then.

Nifty IT has the second largest weight in the Nifty50, followed by banking. Despite its poor performance, the benchmark rallied 3.50% in August. Furthermore, the Nifty has risen 15.65 percent since its low of 15,183 on June 15.

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 US economy shrank by an annualized 0.9% in the second quarter of 2022, following a 1.6% drop in Q1 and technically entering a recession as economic contraction took place for two consecutive quarters, according to media reports. The US Federal Reserve has announced 225 basis-point rate increases so far in 2022 to tackle multi-decade high inflation.

The UK economy is struggling with high inflation, which has driven up the cost of living to record high levels as food and energy prices soar. As the UK's economic woes are getting worse by the day, the consensus among traders is that the Bank of England will have no choice but to force the economy into a severe recession and cause widespread job losses to rein in price pressures, according to Bloomberg.

The BOE raised its main rate by 50 basis points to 1.75% at its August 2022 meeting, the sixth consecutive rate hike, pushing borrowing costs to their highest level since 2009. The ECB, on the other hand, raised its 3 key interest rates by 50bps during its July 2022 meeting, the first increase since 2011, ending eight years of negative rates, in an attempt to relieve inflationary pressures.

Major Indian IT companies derive 40–70% of their revenue from the US and the Eurozone, thus any slowdown in these economies will translate into fewer deals for the 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.

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.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 05 Sep 2022, 11:07 AM IST