Nifty IT Tumbles Over 5%; Why Falling Rupee Isn’t Helping IT Stocks?

  • Stock Market Analysis

On 19 May 2022, the Indian markets have been seeing a red sea of numbers, taking cues from global markets. The benchmark index Nifty 50 is down 2.41% to 15,848 by 1:50 PM IST, with only two constituents trading in the green.

Surprisingly, five of the top six losers are large-cap tech companies that are denting investors’ portfolios. Most of the time, the falling rupee against the US dollar supports Indian tech companies as the majority of their revenues come from foreign countries. Hence strong USD/INR helps to bump up earnings when converted into the rupee.

Nifty IT

Image Description: Daily chart (YTD) of Nifty IT (Blue) & Nifty (Purple), showing comparative analysis

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However, the rupee is trading near all-time lows against the US dollar, still, shares of IT stocks were torpedoed in today's session, not giving any respite to investors. The Nifty IT index tumbled 5.29% to 28,490 by 2:00 PM IST, significantly outpacing Nifty’s 2.41% fall today. 

One of the major reasons for a tech selloff is more or less a ripple effect of a deep cut in the Nasdaq 100 in the last session. Tech stocks in the US have been hammered for the last few weeks as investors take a cautious stance amid uncomfortable inflation numbers. Fed’s recent rate hike of 50 basis points has further confirmed a nearing period of continuous rate hikes which would make valuations of these tech stocks a bit uneasy.

On 18 May 2022, the US market faced severe selling pressure with tech stocks becoming the biggest drag. The tech-heavy Nasdaq 100 tumbled 5.06% to close at 11.928.31, the lowest closing since November 2020. 

Another trigger for investors to liquidate their holdings of IT shares is the new report by JP Morgan. Global investment bank JP Morgan has become bearish on the earnings of some of the frontline India tech companies and consequently downgraded the IT sector. It reduced the target by a decent 17% to 28% across the companies. 

The prominent names making an entry into JP Morgan’s downgraded list are - 

  1. Tata Consultancy Services Ltd. (NS: TCS ) - Target price reduced from INR 3,900 to INR 3,100 (-20.5%)

  2. L&T (NS: LART ) Technology - Target price reduced from INR 4,500 to INR 3,200 (-28.8%)

  3. Wipro (NS: WIPR ) - Target price reduced from INR 520 to INR 430 (-17.3%)

  4. HCL Tech (NS: HCLT ) - Target price reduced from INR 1,150 to INR 950 (-17.3%)

One major reason for the downgrade is the high attrition rate that IT companies would be expected to witness in the near future with the demand rising for more experienced candidates. Nonetheless, the Nifty IT index is down almost 28% from its all-time high of 39,446.7, marked this year as high-growth fever is coming down and value concerns have started to surface.

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  • Srinivas Kumar M S S @Srinivas Kumar M S S
    We should not believe these guys. They failed in many instances.
    Like 3
  • dr enterprises @dr enterprises
    CONFUSING MARKET......................
    Like 1

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