Last Updated on Jun 10, 2022 by Aradhana Gotur
The Nifty IT index has tumbled ~25% so far in 2022. IT stocks have corrected sharply owing to broad market weakness and US’ prolonged slowdown in IT spending.
The fall was triggered by foreign portfolio investors (FPIs) selling their holdings. According to NSDL, FPIs liquidated stocks worth over Rs 16,000 cr. from the IT sector amid a volatile rupee.
As per JM Financial Services, this correction has cooled off valuations after the strong re-rating throughout the last 18 months.
The brokerage said, “We continue to be backers of ‘higher than pre-COVID growth/multiples’ for Indian IT with increased resilience of global delivery and increasing attractiveness for ‘offshore delivery’ as clients seek more cost efficiencies in a high inflationary environment”. Their top IT picks among tier I techs are Infosys and HCL Technologies, PSYS and MPHL amongst mid-tier techs, and FSOL and ZENT amongst small cap techs.
According to JM Financial analysts, cross currency headwinds will drag down the reported USD revenue growth by 175-250 bps in FY 2023. They said, “Indian tech companies enjoyed favourable cross currency gains through both FY21 and FY22 which aided reported USD revenue growth for the periods. However, currency moves in recent months will likely pull down reported USD revenue growth by 175-250 bps across Tier I techs. Although the adverse cross currency moves will pull down the reported USD revenue growth for the Indian IT stocks, the net impact on operating margins would be slightly positive in case the current exchange rates are under control.
Inflation and weak global cues continue to be a concern as clients IT spending takes a hit. Concerns about the US recession are not helping either. However, as per analysts, Indian and global techs suggest that clients are committed to their initiatives.
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