TCS, HCL Tech and most IT stocks fell today, dragging the Nifty IT index down over half a percent ahead of the quarterly results announcement. TCS share price dipped 0.21%, HCL Tech fell 0.81% and Nifty IT tumbled 0.74%. According to analysts, the Indian IT sector is likely to report a subdued earnings performance in the fiscal first quarter Apr-Jun, with giants Infosys and TCS remaining flat, primarily due to a slower conversion of the deal pipeline, resulting in a decline in volumes during a seasonally strong quarter. The Nifty IT index has gained 2.5% in the last one year while the Nifty 50 has jumped over 7% in the same period. All the constituents of the Nifty IT index were trading in red with Coforge, LTI Mindtree, Infosys, Persistent Systems, LTTS, MPhasis, Tech Mahindra and Wipro falling up to 2% today.
Earlier this year, Siddharth Oberoi, Director, Prudent Equity told FinancialExpress.com, that the IT stocks may remain under pressure. “IT is a very US-centric business and there are a lot of mid-sector banks in the US which are in trouble. And in India also, all these companies which are catering to those had a lot of mid-banks as their clients. So, right now, increasing IT spending for them, for those banks is very difficult. There are a lot of layoffs going on in the US. So, there will be a lot of pressure on the IT stocks,” Siddharth Oberoi said.
Analysts at HDFC Institutional Equities have reduced the IT sector’s earnings estimates by approximately 1% primarily due to a lower short-term growth trajectory valuations rollover to Jun-25E. The report predicts that the growth of the IT sector will moderate to 5% in FY24E but is expected to recover to 9% in FY25E. The mid-tier IT segment is likely to maintain a growth premium of more than 500 bps, which is also evident in the difference between the trend of earnings estimates for tier-1 IT (down 5% YTD) compared to mid-tier IT (which saw a 3% increase in EPS estimate).