It Stocks 2022: Year-End Special: IT stocks end 5-year winning streak as 2022 becomes worst in 13 years | Jobs Vox


NEW DELHI: Snapping its five-year winning spell that saw the Nifti IT index rise nearly 4 times, tech stocks end 2022 with their worst run since the 2008 global financial crisis.

The last two years 2020 and 2021 were among the best for Nifti IT in recent times as the index rose 54.9% and 59.6% respectively. Amid concerns about margins and growth prospects against a weakening global macro backdrop, 2022 has been an endless winter for tech stocks.

Just as a receding tide pulls all boats down, all IT stocks in the index end the year as eroding fortunes with four counters –

, , and LTIMindree – lose over 40% of their market value. The Nifty IT alone is down around 24% year-on-year, making it the worst performing sector.

The market crashes of 2008 and 2004 were worse for the sector with the IT barometer falling by 87.5% and 54.6%, respectively.

Will IT make a comeback in 2023?
Investors fear that amid a likely recession in the US and Europe, the valuation and earnings of globally connected IT services could come under pressure.

In past cycles, whenever the slowdown affected the US/Europe, the currency’s constant growth as well as sector valuations fell 20-60%.

“As the US slows, visibility of IT spending remains much lower than the previous 2 years, which could reflect on earnings growth in CI23.” We expect mid-high single-digit earnings growth for the sector in Q123,” said BofA Securities India analyst Amish Shah.

Stating that valuations at 24k one-year forward PE are significantly elevated levels from the historical average of 19k, he said IT stocks are not yet at attractive levels and are expected to underperform in calendar year 2023.

Jefferies expects revenue growth for Indian IT services companies to decelerate by 250bps to 7% in CI23/FY24 due to tightening client budgets, shifting priorities in technology spending and delayed decision-making amid an uncertain macro environment. While overall revenue growth for IT firms over 9 months of FY22 was strong at 18% y-o-y, margins for IT firms touched a decade low of 18.9% in Q1 FY23 mainly due to pressure on wages.

Credit Suisse India Equity Strategist

Mishra said that as monetary tightening in the US begins to weaken the labor market, IT services companies will also experience a reduction in earnings.

In our view, the point at which the US labor market starts to show pressure, and company management starts to talk about weak order flow, would be a good time to take another look at this sector.

What should investors do?

Retail investors with a long-term investment horizon can start picking large IT stocks in a gradual manner.

for jeffrey,

is the only buy recommendation in the IT sector, given the company’s superior growth profile.

Global brokerage firm

has reduced exposure to the Indian IT sector, excluding Infosys. He also retained exposure.

Domestic mediation

Securities, which is cautiously bullish on the sector, says IT remains a structural growth story as cloud adoption and digital penetration grow. The brokerage has included Infosys among the list of 8 stocks to accumulate during 2023.

(With inputs from Ritesh Presswal)

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


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