IT selling’s expected to continue

Mumbai: Shares of Information Technology (IT) companies such as Tata Consultancy Services, Infosys, HCL Technologies and Wipro among others have weakened in the past week in the run-up to their fourth quarter results. TCS’s March quarter earnings announced after trading hours on Monday, which was in line with estimates, may ease worries about their prospects, but that may not be enough for these stocks to entirely recoup the recent losses, said analysts.

“TCS results will not lead to a big rally or short covering in the IT space. Profit booking will continue in the space for some time,” said Siddarth Bhamre, research head at Religare Broking.

The Nifty IT index is down nearly 4% so far in April as against the 1.2% gain in the Nifty in the same period. L&T Technology Services, Mphasis, Infosys, Persistent Systems, Tech Mahindra, HCL Tech, Mindtree, TCS, Wipro and L&T Infotech are down over 1-7%. In the derivatives segment, traders have added bearish bets on IT stock derivative contracts ahead of the results season, with open interest up 10-45% along with decline in prices.

Analysts said TCS could witness a relief rally after the results, which could rub off on its peers but a major rebound is not on the cards. Software services companies are battling wage cost inflation which could impact margins in the coming quarters. TCS’s numbers are not a major positive deviation from what was expected, they said.

TCS reported a net profit of ₹9,926 crore, up 1.6% sequentially; while revenue at ₹50,591 crore was up 3.5% sequentially. Margins stood at 24.96% compared to 25.03% a quarter ago.

“Infosys, Wipro and Tech Mahindra are heading towards support levels and in a downtrend. One should not hurry to take exposure in the IT space,” said Bhamre.