nifty it index: Sector Watch: Nifty IT index plunges 13% in April; what should investors do in May?

The S&P BSE IT index plunged more than 12 per cent while the Nifty IT index saw a steep drop of nearly 13 per cent in April weighed down by muted results from top IT heavyweights as well as expensive valuations.

The sharp fall in IT stocks was led by selling in heavyweights such as Infosys, MindTree, Tech Mahindra, Wipro, L&T Technology Services, etc that were down 10-20 per cent each in the last month.

However, post the recent double-digit correction in April, some of the IT stocks are looking good only from a long-term perspective, suggest experts.

ET CONTRIBUTORS

What led the selloff

The IT sell-off was largely driven by concerns about the US economy where we may see a hike in interest rates to contain inflationary pressures.

“A hike in interest rates in the US may affect spending by US firms, including their IT budgets. Another reason is the sharp price corrections that we have recently seen in Nasdaq IT stocks that are being carried to Indian IT stocks,” Arun Malhotra, Founding Partner & Portfolio Manager, CapGrow Capital Advisors, said.

“Our fundamental view is that the IT demand scenario remains robust and is a structural shift, and we will continue to see higher deal wins,” he added.

Long-term pick

IT sector companies score much higher on strong current cash flows, history of high dividends and buybacks and corporate governance. It is expected to grow in double digits in FY23 as well which makes the sector a long-term pick.

“The sector is still expected to grow in double digits after a 20% plus growth last year. Present salary level adjustment happening in the sector also underscores the high demand and strong deal pipeline,” Amit Joshi, Chief Investment Officer, Bajaj Allianz General Insurance, said.

“After the recent 15-20% correction in the sector, valuations are in line with future growth expectations. However, we will be selective here as now the high growth phase of the whole sector is behind,” he added.

What should investors do?

The Nifty IT index fell by about 13 per cent in April, and the weakness in the sector could well continue in the month of May as well, suggest experts.

The index is trading below crucial short- and long-term moving averages of 20, 50, 100 and 200-DMAs which is a sign of weakness.

“Along with some disappointment seen in March quarter results, the global selloff in IT industry too could have kept them under pressure. At this juncture, the weekly chart of NIFTY IT depicts that the index is trading below its 50-period moving average,” Mehul Kothari, AVP – Technical Research, Anand Rathi, said.

“Thus, we expect the index to settle down somewhere between 29,800 – 29,000 in the coming weeks and that indicates some more softness in the sector,” he added.

Manojh Vayalar, VP – Equity Derivatives at Religare Broking Limited, said the results season has seen more selling in IT stocks. For Nifty IT index, 30,000 seems to be the support.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)