Nifty IT index hits four-month low; TCS, Infosys down 2%
Shares of frontline information technology (IT) companies were under pressure with the Nifty IT index hitting a four-month low on Friday. Tata Consultancy Services (TCS), Infosys and HCL Technologies from the Nifty IT index were trading lower in the range of 2% to 3% on the National Stock Exchange (NSE).
At 01:05 PM; Nifty IT index, the largest loser among sectoral indices, was down 1.7% at 13,835 points, as compared to 0.41% decline in the Nifty 50 index. The IT index hit an intra-day low of 13,820, its lowest level since June 25, 2018. It has fallen 15% from its all-time high level of 16,361 recorded on September 25, in intra-day trade.
Infosys, TCS, Tech Mahindra, Mphasis, L&T Infotech, HCL Technologies and Mindtree were down in the range of 11% to 28% in past one month.
Between June 2017 and September 2018, Nifty IT index had rallied 56%, as compared to 14.8% rise in the Nifty 50 index.
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Nifty IT index outperformed Nifty – for the fifth successive quarter- by a massive 1,120 bps in the September 2018 quarter. The outperformance in first four quarters was predominantly driven by expectations of revenue growth pick-up in FY19 boosted by US tax reforms and better relative valuation.
In the September 2018 quarter, analysts at Nirmal Bang Securities believe the outperformance was additionally driven by a very large INR depreciation (4.3% QoQ) versus USD and real and perceived deterioration in fortunes of financial sector especially post the ILFS episode and rise in Indian 10 year Gsec yields.
The brokerage firm reiterates that structural pressures continue to weigh on the sector’s growth prospects. These include value compression and cannibalisation from automation (which is reaching enterprise scale, in our view, countering the upside from digital projects which are also scaling up) and movement to the cloud, a weaker but improving competitive position in ‘new areas’, insourcing, etc.
“Despite this we continue to be ‘tactical bulls’ due to non-fundamental factors and the steep INR depreciation we anticipate which should drive earnings for the Tier-1 companies to mid-teen level over FY18-FY21E versus mid-single digit growth in FY15-FY18,” the brokerage firm said in IT sector update.
Meanwhile, according to research firm Gartner, overall IT spends, including spending on IT services software, computer hardware, data centre systems and communications technologies, are expected to grow slower at 3.2% in 2019 to $3,816 billion as compared to 4.5% clocked in 2018.
The reason is, the market, which is bogged down by an anticipated slowdown in global economies and currency volatility, as well as trade wars, is expected to grow at a slower rate of 4.7% in 2019 as compared to 5.9% in the previous year, according to Gartner. CLICK HERE TO READ FULL REPORT