Nifty IT index extends decline for fourth day; Infosys, TCS fall up to 2%

Nifty IT index extends decline for fourth day; Infosys, TCS fall up to 2%

Shares of information technology (IT) companies were under pressure on Friday with the Nifty IT index falling over 1 per cent and extending its decline into the fourth straight day, after the US indices extended falls as sentiment remained fragile.

Tata Consultancy Services (TCS), Infosys, Wipro, NIIT Technologies, Larsen & Toubro Infotech, KPIT Technologies, Tata Elxsi and Sonata Software were down between 1% to 2% on the National Stock Exchange (NSE).

At 12:07 am, the Nifty IT index was down 1.3% at 14,354, as compared to a 1.2% decline in the Nifty 50 index. In past four trading days, the IT index has slipped 3.4% against a 0.45% fall in the benchmark index.

“US stocks continue to sell-off with Nasdaq at the cusp of entering 'bear' market territory as sentiment turns weak. The US dollar sees a sharp decline to hit a six-week low with most emerging market currencies seeing gains,” IIFL Securities said in a client note.

A significant and faster-than-expected slowdown in the US and global economy, the rise in interest rates in the US and trade war with China could be the catalyst. Faster-than-expected return to Indian ‘financials’ as interest rates stabilise and stressed asset provisioning peaks are the major downside risks for IT sector, according to Nirmal Bang Equities.

“Robust global economic growth combined with tight liquidity globally will help the sector initially as the Indian currency rupee depreciates (probably a bit more than what we had anticipated), but there would come a time when the tightness of financial conditions will adversely impact developed market growth, revenue growth for Global 2000 companies, their spending plan and consequently demand for Indian IT services,” the brokerage firm said in a report dated December 5, 2018.

“We, however, believe that it is probably another 12 months away and do not foresee any material negative to develop on the demand front in the next six months. The real risk, in our view, is the elevated revenue growth expectations (in USD terms) for FY20 and FY21. The consensus is likely to moderate as the capex cools off,” it added.

Nifty IT index has fallen 12% from its closing high level of 16,235 on September 25, 2018, against 2.2% decline in the Nifty 50 index.

Despite the recent correction, IT index has outperformed the market by gaining 25%, as compared to a 4% rise in the benchmark index thus far in the calendar year 2018.