All the IT stocks from the L&T stable, including Mindtree, tanked alongside behemoths like TCS and Infosys, wiping out ₹80,000 crores or $10 billion in investor wealth amongst a handful of IT stocks.
The decline in the stocks in the Nifty IT index reflected the overall index itself, which was down by 3% as of 10 a.m. today.
TCS contributed nearly half to the decline in Nifty IT, but it is more or less in proportion to its market capitalization when compared to the other stocks in the index.
Inflation has been a thorn in the side of central banks of several countries around the world. Indian central bank governor Shaktikanta Das called it ‘globalized inflation’ while hiking interest rates for the second time recently.
Today’s market crash also mirrors a major equity market’s fall around the world after US inflation hit a 41-year high. Wall Street experienced its worst week since January this year, and US investors could be in for more pain.
This, in turn, is bad news for Indian IT companies which bank on the US for a lion’s share of their revenues. Any indication of their spending habits translates into a fall in stock value.
The Indian IT sector made merry after the pandemic since companies around the globe rushed to upgrade their IT infrastructure. But with inflation becoming a pain point in most of the major economies around the world, companies are cutting back on spending. This has had a direct impact on Indian IT giants like TCS, Infosys, and Wipro, among others.
“Rising margin headwinds in the near term and revenue headwinds in the medium term from a potential macro slowdown will mean that the sector’s earnings upgrade cycle is behind. We see peak revenue growth behind us and EBIT margins trending down from inflation, mean reversion,” stated a research note by JP Morgan.
The brokerage downgraded the Indian IT sector to ‘underweight’. The Nifty IT index has also seen a massive correction since the beginning of 2022 – it is down 28%.
Here’s how some of the major constituents of Nifty IT have performed this year: