Why are investors dumping IT stocks on Dalal Street?

Nasdaq-listed IT services company Cognizant will be onboarding 50,000 freshers from India in calendar year 2022, up from 33,000 freshers in CY21.
Back home, TCS has added 77,000 freshers in the first nine months of FY22, while Infosys has revised total fresher hiring target for FY22 to 55,000 from earlier 45,000. Accenture, too, has done net addition of record 105,000 employees in H2CY21.
 
The Street, however, isn’t liking such massive hiring numbers as these are weighing on the companies’ financials at a time when growth rates are moderating.

On a year-to-date basis, the Nifty IT index has slipped over 7% on the NSE, underperforming the benchmark Nifty50 index that has moved up over 2% during this period.

We spoke to G Chokkalingam, founder and chief investment officer at Equinomics Research, to understand what’s slowing down the momentum in the IT industry.
 
Analysts at Prabhudas Lilladher expect employee costs for IT firms in their coverage universe to increase by Rs 645/548/569 billion per year for FY22/23/24E, which is roughly 2x of last 6-year average.

 Apart from domestic headwinds, the recent global tech rout has also eroded the market value of IT stocks. Tech-heavy NASDAQ, for instance, has lost nearly 8% thus far in CY22.
FANGMAN stocks – or Facebook, Apple, NVIDIA, Google, Microsoft, Amazon and Netflix – are down 10-30% in the past one month.
Analysts believe the concerns on the monetary policy tightening in the months ahead are weighing heavily on tech companies that are yet to show revenue and profit growth.

But, should one invest in IT companies at current levels or stay on the sidelines?
Chokkalingam believes the mid-cap IT companies still hold promise and investors can use the fall in these stocks to accumulate from a medium-to-long term horizon.
 
The Nifty IT index underperformed on the bourses yesterday, falling 2%. In comparison, the BSE Sensex and the Nifty50 closed 1.3% down at 58,788 and 17,560, respectively.
Against this backdrop, the performance of IT stocks will be on investor radar today.
That apart, December quarter results of 114 companies, including Bank of India, InterGlobe Aviation, Paytm and Tata Steel will also guide the markets.
 
Meanwhile, in the primary markets, ‘Manyavar’ brand owner, Vedant Fashions, will open its initial public offer today.
The company plans to raise up to Rs 3,150 crore, in the price band of Rs 824 to Rs 866 per share.
Brokerage recommendations vary from ‘Neutral’ to ‘Subscribe with caution’ as current positives are captured in the valuations commanded by the company.
 

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