Investors will remember 2022 as the year the narrative around tech stocks broke, ending years of their dominance. While India has remained resilient to the global rout and made up for losses in most sectors, including technology, this notable underperformance by prominent IT names has caused a lasting dent in Dalal Street. The Nifty IT Index emerged as the worst performing sectoral index in the calendar year 2022. This decline comes after five consecutive years of annual growth.
Once a favorite of investors, shares of the IT major
have cracked 47% this year, making it the worst in 2022. Geopolitical risks, including the Russia-Ukraine conflict, recession worries, margin concerns after acquisitions such as Capco and Rizing, and disappointing quarterly results dampened the outlook for stocks.
The large-cap IT company delivered its worst returns since the global financial crisis in 2008 when it fell to 55%. After two years of double-digit growth, the stock will end in the red again.
, , , , and DRL are other stocks that have fallen by up to 42% this year. About 18 stocks out of the 50-stock portfolio gave a negative return in 2022.
“The reason why Wipro has underperformed its peers is that the guidance they have given has been relatively weaker than others,” said Kranti Bhatini, equity strategist at WealthMills Securities. The company provided guidance for revenue growth of 0.2% for the October-December quarter (Q3FI23), well below Street expectations, due to macro uncertainty and geopolitical issues. This was lower than the Q1 guidance of 3-5%.
Bathini said Wipro has historically been a high-beta stock compared to top tech names and that’s one of the reasons it’s underperformed, but said valuations look attractive at current levels.
This brutal year for the tech giants is now coming to an end with little confidence that the outlook will improve any time soon.
“We remain cautiously optimistic about the sector.” In our view, share price appreciation in the coming quarters will mostly be a driver of earnings growth as we see limited opportunities for revaluation in the industry,” he said
Margin pressure has peaked and is expected to improve as divestment and subcontracting normalize, it said, adding that the PAT factor is CAGR of 10% over FY22 to FY24.
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 total revenue growth for IT firms over 9MQY22 was strong at 18% YoY, margins for IT firms touched a decade low of 18.9% in Q1FY23 mainly due to pressure on wages.
(With input from Ritesh Presvala)
(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own. They do not represent the views of the Economic Times)