TCS, Infosys, Wipro continue their downward slide into a 52-week low

• Weak market blow takes down the shares of top information technology to hit their 52-week.
• This is despite the positive commentary on the sector supported by the optimism that companies are still spending fortunes on digital transformation.
• However, investors seem to be worried about the potential recession in the US to impact the sector badly.

The fear of the US slipping into recession has imploded the valuations of Indian IT companies. The shares of the top five Indian companies including Infosys, TCS, Wipro have hit their 52-week low as investors fret over a possible recession in their biggest market – the US.

"The stock price correction (in IT firms) has largely been due to de-rating of valuation multiples, as earnings estimates have largely remained intact or seen minor downgrades. The reasons for this sharp derating, as we mentioned above, are largely related to the global macro environment,” said a report by Phillip Capital.

Over the past few months, stock markets across the world have been hit by concerns of the US Fed tightening liquidity, rising inflation in the US/European Union, the Russia-Ukraine conflict, volatile crude and commodity prices.

All these macro risks point to growth slowdown in US/EU, key markets for the Indian IT services industry – putting the basic growth assumptions into question. High inflation reduces the spending power of corporates, and hence the revenue growth potential of IT services companies, at risk, says the report.

Temporary effect say IT sector analysts
Despite the heightened concerns of Indian IT firms losing business, analysts are confident that the impact will be short term and temporary.

“While the global macro fears are for real, we believe their impact on earnings will be minimal and temporary. The demand outlook continues to be super-bullish – by Gartner, ISG, Accenture and Infosys/HCL (in their recent analyst meets). The commentary on tech spending by major BFSI and retail players (two major verticals for Indian IT) also remains strong, despite macroconcerns,” added the report.

Tech Mahindra and Wipro have seen a steep fall
According to analysts, Indian markets are another 10% correction away from it, and it all hangs on an announcement around a recession in the US markets – indicating that the pain in this sector might continue for the foreseeable future, even though they believe in the fundamentals of the sector.

Within IT stocks, however, analysts choose TCS and Infosys to better weather the storm - leaving TechM and Wipro with the steepest fall in valuations.

Experts believe are optimistic that companies are still spending on digital transformation – which has become key to survival for many sectors. The tech spending cycle wave is in favour of IT majors like TCS, Infosys, Wipro and HCL Tech.

As companies are spending a fortune on digitization, the IT sector is well placed in a volatile and recession-feared market as its demand is strong despite high inflation, says a report by Kotak Institutional Equities.

In the meanwhile, however, the selling pressure looks like it’s far off from easing, aided by a broader weak sentiment in the markets.


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