IT stocks have been reeling under the pressure recently as the valuations have corrected significantly amid rising inflation and recession worries. A host of IT and technology stocks have taken a severe hit and plunged as much as 91 per cent in the last financial year.
This steep sell-off in the IT stocks has not only jolted the smaller players or lesser-known names, but even the blue-chip IT counters have faced the wrath of this meltdown triggered by weaker demand, compressed margins, subdued outlook commentary and lower deal wins in the challenging environment.
According to the data from Ace Equity, 45 out of 59 IT stocks have delivered negative returns in the last one year. This indicates that every three out of four IT counters have disappointed the investors since April 1, 2022.
The list of worst performed it’s topped by Cerebra Integrated Technologies, a microcap IT player, which has plunged about 91 per cent to Rs 7.37 April 3, 2023. from Rs 78.86 on March 31, 2022.
It is followed by Brightcom Group, which has plunged over 83 per cent in the last fiscal to close at Rs 16.10 on Monday against its close at Rs 97.40 on March 31, 2022. Dalal Street veteran Shankar Sharma owned 2,50,00,000 equity shares or 1.24 per cent stake in the company as on December 31, 2022.
Other tech stocks including Xelpmoc Design and Tech (down 69 per cent) and Tanla Platforms (down 64 per cent) are also among the worst performers. Intellect Design Arena, in which Mukul Mahavir Agrawal held 2,50,00,000 equity shares or 1.84 per cent stake, down 55 per cent in the last one year.
Mastek, Mphasis, Kellton Tech Solutions, FCS Software Solutions, Birlasoft and CyberTech Systems and Software have plunged 40-55 per cent in the given period. Stocks including Digispice Tech, 3I Infotech, Black Box, CE Info Systems, HCL Info, L&T Technology, Tata Elxsi, 63 Moons Tech, Allied Digital and ASM Tech are down over 30 per cent each in the last one year.
Not only the midcap or smallcaps, even the Nifty50 constituents such as Wirpo have tumbled about 38 per cent in the last one financial year. Tech Mahindra and Infosys have tanked 26 per cent each, while Tata Consultancy Services is down 15 per cent. HCL Technologies had shed 6 per cent during the given period.
Other renowned IT counters including Ramco Systems, Nelco, Happiest Minds, Zensar Tech LTIMindtree Quick Heal, Coforge, Sasken Technologies Subex and OFSS have posted double digits cuts in the last one year, underperforming the BSE Sensex which has risen about a per cent.
The IT and technology sector has been the worst hit amid the rising inflationary pressure and interest rate regime by the central banks. Even the murmurs of recession and liquidity crisis among the economy experts do not bode well for these stocks.
Nomura puts out a report saying that it expects the Fed to cut rates by 0.25 per cent and stop quantitative tightening at its March 22, 2023 announcement. However, Fed Futures showed a 65 per cent chance of a 25-basis points rate hike.
Industry experts remain cautious on the domestic IT stocks and suggest the investors should not hurry in the bottom-fishing ahead of the Q4 earnings. They said that deal wins, margins, management commentary, order book and end of interest rate cycle will be the key factors to watch in the seasonally weak quarter.
While IT companies’ valuations have corrected from the recent peak, the valuations are still above long-term averages, said Anand Shah, Head-PMS and AIF Investments, ICICI Prudential AMC in an interview with Business Today.
“We believe over the next 2-3 quarters we will have better visibility of growth risks emerging from recent weakness in the US economy and individual company’s commentary around the same. Thus, we believe, that would be time to reevaluate our view on the IT underweight position we are running,” he said.
Brokerage firm Phillip Capital believes that revenue growth rates will see moderation in FY24 after the very strong acceleration that we saw in the last two years due to accelerated digital adoption. It is forecasting high single digit growth in Tier I & low to mid double-digit growth in Tier II for FY24 but the bottom-up indicators remain positive
Phillip Capital has picked LTIMindtree, Infosys and TCS from the Tier-I segment, whereas Coforge, Persistent and Mphasis are its choices from the tier-II.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
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