Nifty IT slips 2%; macro concerns weigh on Indian tech stocks

Shares of Indian IT service providers Infosys Ltd., HCL Technologies Ltd., Wipro Ltd., L&T Infotech, Mpahsis Ltd. and Coforge Ltd, among others, were under pressure on Tuesday, falling 2.0 to 2.5% each on the National Stock Exchange. in the opening of tenders. As a result, Nifty IT saw a similar decline.

Growing concerns over weakening global macroeconomic conditions amid geopolitical turmoil weighed on computer stocks. Note that Indian IT companies derive much of their revenue from the United States and Europe. The postponement of customer spending does not bode well for the deal pipeline and therefore revenue growth visibility for IT companies.

Retail, which is the second largest vertical for Indian IT services companies, is facing strong headwinds, according to analysts at Motilal Oswal Financial Services Ltd. “Major retailers are reporting slow revenue growth, which will affect IT spending. To add fuel to the fire, profits for these major retailers are being hit by inflation,” he said. stated in an August 22 report.

The retail sector contributes 15% of the total revenue of large-cap companies Tata Consultancy Services and Infosys each. For mid-cap companies, Mindtree Ltd and LTI, this vertical represents 23.6% and 10.3% of their overall revenue mix, respectively.

Apart from this, the manufacturing vertical is also facing challenges – shortages of semiconductors, unavailability of major raw materials (from China), manpower, supply chain disruptions. Supply and commodity price inflation are the main headwinds for the sector, Oswal’s Motilal Report noted.

Although long-term IT spending remains intact due to strong demand for these products, there could be a short-term impact due to a delayed recovery in supply, he warned.

In Q1FY23, IT companies experienced severe margin compression due to wage increases, increased travel costs and outsourcing expenses. Attrition levels also remained high for most IT companies. So far this calendar year, the Nifty IT index is down 26%, underperforming the benchmark Nifty50 index, which is down around 1%. Following this decline, valuations of IT stocks have softened.

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