Shares of IT majors Infosys, Wipro, and TCS hit their fresh 52-week lows today as Indian markets tanked in line with global equities. High interest rates in the US and other major economies to tame inflation have brought the global economy on the verge of a recession which in turn has roiled sentiment in markets worldwide. Shares of Indian IT companies, which earn a majority of revenue from global clients, have taken a beating this year as the earnings outlook during the looming global recession turns grim.
The shares of the three IT majors, which cater to clients worldwide, have fallen up to 45 per cent in the last one year.
While Infosys is down 21.52 per cent, stock of Wipro has plunged 44.81 per cent during the period. Shares of TCS are down 22.51 per cent in a year.
On a year-to-date basis, the three IT stocks have lost up to 30 per cent during the period. While Infosys stock is down 26.76 per cent, Wipro shares have declined 44.81 per cent this year. The leading IT major by market cap TCS has lost 19.86 per cent during the period.
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In today’s trade, stocks of Infosys, Wipro and TCS touched their fresh 52-week lows as Dow Jones sinked to a fresh 2022 low overnight tracking Federal Reserve’s hawkish stance to tame inflation. On Friday, the S&P 500 fell 64.76 points to 3,693.23, its fourth straight drop. The Dow Jones lost 486.27 points to end at 29,590.41. The Nasdaq declined 198.88 points to 10,867.93.
The dark sentiment in the US market was reflected in the Indian market today. Sensex tanked up to 1,060 points to 57,038 and Nifty lost up to 349 pts intra day.
Amid the crash, shares of Infosys hit a fresh low of Rs 1,355.5 today. Similarly, TCS shares touched a yearly low of Rs 2,926 and Wipro fell to a fresh 52-week low level of Rs 384.6 on BSE.
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However, the three IT shares closed up to 1.06 per cent higher today as the Indian rupee fell to an all-time low of 81.52 spooked by the rise in the dollar index.
The global economic stress has prompted financial services company Goldman Sachs to downgrade top Indian IT services players Tata Consultancy Services (TCS) and Infosys to ‘sell’ from the previous ‘buy’ stance. However, it has upgraded Wipro to “buy” from “sell,” citing attractive valuations and a recent pickup in the company’s order book.
The downgrade for TCS and Infosys came as Goldman Sachs sees a potential slowdown in dollar revenue growth in the face of impending macroeconomic stress for both firms.
Under the effect of slowdown, several top tier companies missed profit estimates in the April-June quarter due to higher costs. Goldman Sachs also cut FY24E dollar revenue growth forecast for the top 5 Indian companies in mid-September this year.
“The Indian IT sector benefitted from three secular tailwinds during the pandemic: outsourcing, offshoring and digitalisation on the back of accelerated cloud migration. Given the upcoming macro slowdown (not recession) our macro team expects, which is percolating down multiple leading demand indicators, we believe Indian IT sector USD revenue growth will start to materially slowdown from here, weighing on the secular tailwinds highlighted above. Hence, we cut our FY24E dollar revenue growth forecast for the top 5 companies by 4 ppt to 6% yoy on average vs. our earlier forecast of 10%,” Goldman analysts said in a note.
Goldman Sachs said it remains “more sanguine” on the EBIT margin forecasts than on revenue of Indian IT companies, given multiple levers such as higher employee utilisation, controls on variable pay and annual wage hikes.
With the three IT stocks hitting fresh lows today, here’s a look at what experts said on their outlook and which one was a better pick among them.
Santosh Meena, head of research, Swastika Investmart is of view that investors can start accumulating Infosys and Wipro at current levels. He sees Rs 2,900 as important support level for TCS.
“The overall structure of both Infosys and Wipro is weak. However, they are trading near their important support levels. They may bounce back from current levels or reverse after a 5-10 per cent further correction but there is a favorable risk-reward ratio at the current juncture in both stocks. Therefore, investors should start accumulating these shares at current levels. In terms of individual stocks, Infosys has relative strength over Wipro where Rs 1,350 is an important support level; below this, Rs 1300 is the next sacrosanct support. On the upside, we can expect a recovery towards the Rs 1500-1550 zone. Wipro is trying to find a base around the Rs 400 mark; below this, Rs 380 is the next support level. On the upside, we can expect a recovery towards the Rs 450-465 zone.
TCS is also trading near the important support level of Rs 2,900 where we can see some accumulation while Rs 2,750 is the next support level. The risk-reward ratio looks favourable at the current juncture. On the upside, Rs 3200 will be the resistance level at any rally,” said Meena.
Chirag Kachhadiya, Lead IT Analyst, Ashika Group said target price for Infosys was Rs 1,670 and for TCS was Rs 3,600.
“We prefer Infosys and TCS from large cap space considering their leadership position and execution capabilities. Post Accenture numbers, it is very evident that slowdown impact may result into tech spend cut and focus on outsourcing will increase in which Indian IT enjoy 55-60 per cent market share. So, we believe Infosys and TCS are relatively safer bets in tough time.”
On the possibility of further decline in IT stocks, Kachhadiya said, “About further fall, currently overall IT sector it trading at about 20 per cent premium than long-term medium average multiple. If further downgrade comes, then possibly similar will fall come in the discussed stocks. That will be an accumulation opportunity for long term investors.”
Ravi Singh, vice President and head of Research, Share India finds Infosys as a value pick among the three IT stocks.
“The overall IT sector is on promising outlook in terms of attractive valuations and robust growth margins. The long term outlook is well supported by a depreciating rupee as the sector makes most of the revenues from the overseas market. TCS, Wipro and Infosys all three are good portfolio stocks and have potential to deliver high RoE. However, out of TCS and Wipro, Infosys stock is currently trading around value buying levels and may deliver better returns in the long term perspective as compared to others. Also fundamentally and technically, Infosys holds strong with encouraging growth and robust parameters from a long term perspective. Investors may hold their long positions and wait for the target of Rs 1,450 levels in coming months.
Wipro may trade in a range bound zone of Rs 380 – 400 levels in near term. Long-term investors may hold their positions and an immediate target of Rs 450 levels is probable. Wipro is holding attractive valuations. However, weak EPS needs to be priced in into the current valuations.”
Abhijeet from Tips2trades said, “A global rout in technology stocks has led to a sharp fall in Indian IT stocks including Infosys, Wipro and TCS which are at their one year lows. Both Infosys & Wipro are technically oversold but Infosys looks like bottoming out and can be bought at current levels for immediate targets of Rs 1420-1450 in the coming days.”
On TCS, he said, “TCS also currently looks like temporarily bottoming out and a daily close above Rs 3022 should lead to targets of Rs 3,110-3,190 in the near term. Due to a strong positive divergence in all three stocks, TCS looks stronger and looks due for a strong short covering in the coming days.”