12 Jul , 2022 By : Monika Singh
Shares of Tata Consultancy Services (TCS) plummeted nearly 5% on Monday, wiping out Rs 55,471.22 crore from its market valuation, after its June quarter earnings failed to meet Street expectations. Other IT stocks also ended lower on Monday, with HCL Technologies, Infosys, Wipro and Tech Mahindra falling in the range of 4.10-1.83%. The BSE IT index fell 2.70% to 28,020.72. Analysts monitoring the sector believe that IT stocks are likely to remain under pressure in the near term amid headwinds emanating from the possibility of a recession in the US and volatility in financial markets.
The TCS stock declined 4.64% to settle at Rs 3,113.25 on the BSE. During the day, it fell by as much as 4.87% to Rs 3,105.85. On the NSE, TCS fell 4.70% to end at Rs 3,112. The company, however, said it does not see any adverse business impact because of worries over recession in its key markets. Although TCS reported a 16.2% growth in revenue to Rs 52,758 crore for Q1, with all the big geographies and business segments reporting strong numbers, it was operating profit margins, which slid down to 23.1% — lower than the aspirational band of over 26% — that hurt the profit growth.
Cross-currency headwinds and large-scale talent churn, resulting in higher wage hikes, could add to the challenges the IT sector is facing, especially in terms of the impact on operating margins, analysts said. “In the US and Europe, the macro environment shows signs of worsening… There will be an impact on the IT sector… IT stocks are likely to remain under pressure,” Aditi Patil, research associate at brokerage firm Prabhudas Lilladher told PTI. Reflecting the negativity, the five IT constituents of the Sensex have slumped up to 43% this year. Tech Mahindra has plunged 42.68%, Wipro has plummeted 41.38% and HCL Technologies has dropped 25.38%.
In the case of TCS and Infosys, the decline has been 12.63% and 19.87%, respectively. Jefferies has downgraded shares of select IT companies as it believes the revenue growth of the sector is likely to moderate by about 340 bps due to a recession in the US in FY24. It has downgraded HCL Technologies and Tech Mahindra to ‘hold’ recommendation. The brokerage has cut the rating on Wipro, Larsen & Toubro Infotech, Mindtree and Coforge to ‘underperform’. Despite lowering the target price to Rs1,700 from Rs 1,830, it has maintained Infosys at its top pick. According to Jefferies, TCS is better placed in this cycle, but it has maintained ‘hold’ rating on the IT major because of rich valuations.
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