What has led to a fall in the stocks of IT companies?

The fall in the sector has been triggered by lower-than-expected results of Infosys and TCS. For FY2024, Infosys has given revenue guidance of 4-7 per cent, which is lower than the 16 per cent growth in FY23.

“Basically, the recessionary trends in the developed economies have led the IT companies to put out lower guidance for the current year. Even in the Infosys results the pressure on the margins was felt. When Infosys and TCS – the bell weather IT stocks – talk about pressure on margins then obviously the street is a little cautious,” S Ranganathan, Head of Research at LKP Securities said.

On Monday, Infosys stocks fell to 12 per cent intraday and hit a 52-week low of Rs 1,219. The stock of Infosys was trading at Rs 1261.85 apiece, up 0.3 per cent on Tuesday morning. TCS was down 16.6 per cent to Rs 3,123 apiece the same morning. The Nifty IT index was down 0.16 per cent to 26,968.3.

Other players such as Tech Mahindra, Wipro, HCL and LTIMindtree have also witnessed selling pressure.

How are IT stocks likely to behave over the next 3-4 months?

Analysts say that IT stocks will continue to be under selling pressure for the next three to four months due to uncertainty as the US and Europe are facing recession.

“With the headwinds which are there due to the international recessionary trends, I don’t think investors with the shorter-term horizon will want to buy IT stocks for now. I think that stocks will see some selling pressure,” Ranganathan said.

What should investors do?

Market participants said though IT companies are witnessing some slowdown in demand this year, on a long-term basis the sector seems to be very promising. They expect the risk of recession in the developed economies to reduce next year, which will be good for the sector.

“For a long-term investor, this is a very good time to start accumulating. One can start accumulating in a staggered manner over the next one year”, said Vinod Nair, Head of Research at Geojit Financial Services.