IT stocks: After India’s third-largest IT services company warned investors of potential growth pangs and pricing pressures, HCL Technologies’ shares fell 6.5% on Friday, their biggest one-day decline in six months. This news supported the narrative of a tech slowdown amid fears of an impending recession in the West.
The BSE Information Technology (IT) index fell close to 3% as a result of the advice dragging down shares of other software services exporters. Both the Sensex and Nifty fell by 0.6%.
Bullish bets on IT stocks
Analysts warned investors against placing bullish bets on IT stocks because the industry may experience additional pain over the following three to twelve months as a result of dim revenue growth expectations that could reduce tech budgets and IT spending.
The IT sector is still not out of the woods, despite our contrarian opinion, according to Gaurang Shah, senior vice president of Geojit Financial Services. “The third and fourth quarters should be particularly trying. In addition, Nasdaq and US technology companies have a gloomy trend that hangs over them.”
Short-term investors should avoid the industry, according to Shah. “But in the long run, IT is a great investment. Be patient and don’t rush. To develop a portfolio, buy on dips and assemble IT stocks at every 3-5% decline.”
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Macro-economic challenges
HCL Tech stated that due to macroeconomic headwinds in the demand environment, the business may record annual revenue growth at the lower end of its 13.5–14.5% projected range for fiscal 2023.
The remarks made by the HCL Tech management upset the investors. On Friday, more than 1.24 crore shares were traded on the BSE and NSE, exceeding the daily average of approximately 28 lakh shares on both exchanges. Wpro shares dropped 2.4%, Infosys shares dropped 3.1%, and TCS shares dropped 1.7%.
Kotak Institutional Equities
Given the rising trend in vendor consolidation and cost efficiency focused deals, Kotak Institutional Equities, which has maintained a buy call on the company with an unchanged fair value of 1250, claimed that HCL’s huge deal engine is operating well with additional prospects. The firm added that with the reduction of talent-related barriers, HCL Tech’s margin profile could become even more favourable.
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