A sell-off in technology stocks due to weak quarterly results and guidance by some information technology (IT) majors ended the three-week winning streak of Indian markets.
The Sensex ended Friday's session at 59,655 points, a gain of 22 points or 0.04 per cent. The Nifty50 ended the day at 17,624 points, down 0.40 points. But during the week, the Sensex went down by 1.3 per cent and the Nifty50 by 1.1 per cent. This is the first weekly decline for both indices in April.
The weak results and revenue guidance by some IT majors like Infosys due to the banking crisis in the developed world increased the volatility this week. Many analysts rushed to lower the target prices for IT stocks on fears that a recession in developed countries could severely impact the demand for IT services exporters.
The revenue hit for IT firms was much steeper than expected and warranted a de-rating, said analysts. In tune with happenings in the IT sector, the Nifty IT index declined 5 per cent during the week. Kotak Institutional Equities, in a note, said that the banking crisis in US regional banks and European banks in March 2023 has induced greater caution and could affect the June 2023 quarter too.
"IT has a significant weighting in the Indian indices. The IT majors have consistently delivered double-digit revenue growth. Now, after a while, we are seeing serious pressure on their earnings. The big international corporations who are customers of these IT firms are shedding their manpower. In such a scenario, even existing projects are under threat. The outlook is much dimmer than what markets had factored in as far as their prices are concerned," said UR Bhat, co-founder of Alphaniti Fintech.
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In the preceding three weeks, the 30-share Sensex and the 50-share Nifty had gained on the back of robust buying by foreign portfolio investors (FPIs). However, in the last four sessions, they were net sellers to the tune of Rs 928 crore. On Friday, FPIs sold securities worth Rs 2,116 crores, according to provisional data received from the exchanges.
"After the strong rally, market players are pausing and examining whether the underlying assumptions are valid anymore. And whether they have to consider a further slowdown," said Bhat.
Concerns about the trajectory of rate hikes further kept the investors on tenterhooks during the week with some central bank officials in the developed world batting for monetary policy tightening to tame high inflation.
Though a jump in the recurring US unemployment benefit claims indicated some softening in the labour market, Federal Reserve officials argued for a tighter monetary policy.
Federal Reserve Bank of Cleveland president Loretta Mester on Thursday signalled her support for another hike while her Dallas counterpart Lorie Logan said inflation has been much too high.
Going forward, analysts said that market trajectory will depend on monetary policy and corporate results.
“The sentiments in the domestic market were dampened due to a weak start to the earnings season by IT bellwethers and their cautious outlook. The most significant risk for the market today is a downgrade in corporate earnings forecasts," said Vinod Nair, head of research at Geojit Financial Services.
On Friday, the market breadth was weak with 1,985 stocks declining and 1,477 advancing. ITC rose about 2 per cent on the day and was, both, the best-performing Sensex stock and the biggest contributor to Sensex gains.