Sensex Crashes as IT Stocks Experience a Bloodbath

Indian equity indices opened on a gap-down note on April 17th due to weak sentiments from lackluster fourth-quarter earnings from the top two IT firms and rising odds of a US Federal Reserve rate hike in May. This led to the Nifty IT index falling over 6% in early trade, with the Nifty 50 index falling 191 points or 1.08% to 17,636, while the S&P BSE Sensex dropped 778 points or 1.29% to 59,666, as of 9.30 am.

Top Losers and Winners Among IT Stocks

Infosys and Tech Mahindra were the top losers falling 7.11%, from the Sensex pack. Other stocks that opened red were Wipro, HCL Tech, TCS, HDFC Bank, HDFC, and NTPC. On the other hand, shares of Angel One, Just Dial, and TV18 Broadcast surged nearly 2% ahead of Q4 results today.

Sectoral Rotation from IT to Other Sectors

Sectoral rotation from IT to performing sectors like capital goods, pharma, and financials will gather momentum. The fear of further rate hikes by the US Federal Reserve has also led investors to worry about slowing growth in India’s economy.

Impact of Infosys’ Dismal Revenue Outlook

Infosys’ dismal revenue outlook and concerns about demand for Indian IT services amid global banking turmoil and recession fears have added to the woes of the already struggling sector. Infosys’ shares dropped by nearly 15% after its revenue outlook was considered dismal. The disappointing quarterly report from larger rival Tata Consultancy Services (TCS.NS) highlighted worries for the sector which earns more than 25% of its revenue from just the US and European banking, financial, services and insurance sector.

Macro challenges, especially around banking, financial services, and insurance (BFSI) have become bigger, causing project cancellations or delays in the deal decision cycle. Infosys expects revenue growth of 4%-7% on a constant currency basis for the fiscal year ending March 2024, which is well below analysts’ expectations of 10.7% growth, as clients canceled some projects and deferred spending on growing fears of a recession. Infosys’ net profit of 61.28 billion rupees ($748.21 million) in the January-March quarter also missed analysts’ expectations of 66.24 billion rupees.

Brokerages Downgrade Infosys

Brokerages have downgraded Infosys after its disappointing Q4 results, with many cutting its target price. Nomura Research predicts that FY24 will be a year of revenue growth disappointment for Infosys.

Outlook for Markets

The Nifty IT index slumped over 6% after Infosys and TCS weak earnings for the March quarter. Fears of a further rate hike by the US Federal Reserve led to markets down today. Investors are also worried about the recent spate in fresh Covid cases in India.

In conclusion, the bloodbath in IT stocks has caused a significant decline in Indian equity markets with a slump in IT firms triggered by Infosys’ guidance. The sectoral rotation from IT to performing sectors like pharma, capital goods, and financials will gather momentum while brokerages downgrade Infosys after its disappointing Q4 results. However, investors are still concerned about uncertain economic conditions due to Covid-19 and rising fears of a recession.

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