Stripping effect! IT stocks plummet up to 10%; Infosys top loser

Infosys led Friday’s bloodbath on Dalal Street as the stock market fell like a deck of cards, breaking a record four-session streak. Shares of Infosys plunged nearly 10% to the day’s lows of 1,305 after its June quarter results on Thursday, where it significantly cut its fiscal 24 revenue growth forecast.

Infosys’ last major fall was on April 17, 2023, when the stock fell over 14% while the Nifty IT index fell 7.62%.

VK Vijayakumar, chief investment strategist at Geojit Financial Services, attributed Infosys’ poor guidance as a drag on the stock. A 1-3.5% revenue growth forecast for FY24 will not only weigh on the stock, but also on Nifty50, as Infosys has a 5.9% weighting in the index.

“The writing has been on the wall for IT outsourcing companies for a long time. However, I think people have wanted to ignore it because they just want to buy IT stocks anytime for whatever reason. There is a time when you have to ignore a particular sector, focus on others and that’s when,” market expert Sandip Sabharwal told ETNow.

He said even that advice from Infosys was aggressive and that he doesn’t think the company will see “any growth” and instead could see a downturn scenario as project slowdowns were still ongoing.

Earnings from Infosys wiped out other IT stocks as well as the 10 stocks in the Nifty IT index that fell in the opening trade. The index fell more than 4% at that time.

As of 9:30 a.m., shares were trading with declines of between 7.7% and 0.70%. Coforge returned to the positive zone and was trading with gains of 0.54%. The other big losers were Persistent Systems (2.75%), HCL Technologies (2.42%) and Tata Consultancy Services (1.68%).

Sabharwal’s advice to investors is to do their own analysis as he thinks executives generally tend to be quite optimistic all the time. “Infosys is at least giving advice, so we’re getting some clarity. Other companies are just talking in esoteric terms that you have to decipher yourself and it gets difficult. So I think the whole industry is going through a transformation phase that will take some time,” he added.

On Infosys stock, Gaurav Bissa, Vice President of InCred Equities, said the stock reversed from a descending trendline hurdle on the weekly charts. The stock is currently trading above the previous low of 1,250 and on the long-term charts the stock is trading comfortably above the breakout zone of the 15-year ascending trendline, suggesting that the structure remains strong in the long term.

“In the short to medium term, the stock can swing between 1250 and 1500. Long-term investors can use this decline as a buying opportunity with an 18-24 month time horizon for new lifetime highs in Infosys,” he recommended.

Infosys reported a nearly 11% increase in net profit in the first quarter, but missed most analysts’ estimates and cut its revenue growth outlook for the fiscal year, blaming spending cuts and delays in customer decision-making, particularly in the key area of ​​financial services.

India’s second-largest software exporter expects its FY24 revenue to grow 1.0-3.5% in constant currency, or excluding exchange rate fluctuations, from the previous estimate of 4.0-7.0%, underscoring global macroeconomic challenges for the country’s historical sector which is seeing lukewarm demand for outsourcing services. The latest growth projection is the weakest in more than a decade, and the cut was called “drastic” and a “shock” by Jefferies.

Despite today’s corrections, the Nifty IT index returned more than 1.7% this week, gaining 514 points.

It underperformed the Nifty50 and gave returns of just over 7% over a 12-month period against an almost 20% rise seen in the broader index.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)