- Shares of Indian IT companies have been hit the hardest this year due to ongoing macroeconomic concerns and fears of a possible recession in the US.
- IT companies get a large part of their revenue from American clients.
- Wipro and Tech Mahindra were the biggest losers with their share prices falling by up to 40%.
- IT sector margins have been hit by multiple headwinds such as heavy attrition and wage hikes.
Information technology companies have been under pressure since the beginning of the fiscal year due to macroeconomic problems in global markets, especially in the US.
Moreover, the sharp drop on August 29 added to the losses made during the year. The speech of the head of the US Fed, Jerome Powell, on August 26 further spoiled the views on the IT sector.
Not to forget, IT companies get a huge pie of their business from US clients, and many of the top tech companies are showing signs of slowing revenue.
Azim Premji’s Wipro saw its shares sell off heavily, followed by Tech Mahindra and HCL Technologies.
| Company | Year to date % change |
| TCS | -16.45% |
| Infosys | -21.68% |
| HCL Technologies | -28.82% |
| Wipro | -42.34% |
| Tech Mahindra | -39.56% |
Source: NSE, 29 August 2022
Powell said at an event in Jackson Hole on August 26 that the cost of bringing down inflation in the country “will hurt households and businesses” in the US. This directly affects investor sentiment for companies that rely on growth in the US.
The IT sector is also among the underperformers in the stock markets given weak corporate earnings and fears of a possible recession in the US that will lead to a slowdown in domestic IT companies.
“The Indian IT industry remains sensitive to the US and European markets, which together contributed about 86% of revenue in FY22,” the CRISIL report said.
Interest rate hikes by the Federal Reserve, inflationary pressures and evolving geopolitical developments could dampen earnings growth and are key to watch, the report said.
Disappointing corporate earnings are slowing the growth of the IT sector
Most top IT companies have seen some slowdown in profits due to increased pressures on employee costs due to increasing attrition rates. IT major TCS reported a modest 5% year-on-year profit growth, falling 5% on a quarterly basis to INR 9,478 crore due to cost pressures in the June quarter. The company said this was a challenging quarter from a cost management perspective as it impacted their operating margin.
Adding to the woes, Infosys reported a nearly 6% sequential decline in net profit in the June quarter due to wage hikes. A quarter of Tech Mahindra’s revenue in the first quarter was eaten up by employee costs, reducing its profit by 25% sequentially.
SEE ALSO: Gautam Adani is now the third richest person in the world, behind only Elon Musk and Jeff Bezos
Indians’ love for travel is so strong that it increases their spending on credit cards