What should investors do with the IT pack amid rising concerns over outlook?

New Delhi: IT stocks have been reeling under pressure following the sharp outflows of global investors, which have pulled out close to Rs 1.65 lakh crore from the Indian equity markets in the current year.

Majority of the IT players have missed the consensus growth expectations and the margin outlook has been moderate. BSE IT index is down by 8 per cent in the current year so far.

According to the market experts, the IT sector is facing multiple headwinds at macro and micro level including slowdown in the economic growth, along with the revenue and margin pressure of the companies.

Arun Malhotra, Founding Partner & Portfolio Manager, CapGrow Capital Advisors said that it was a little late in the cycle for a sectoral downgrade.

“IT sector growth drivers like cloud, digitization, AI, and machine learning are structural in nature,” he added. “Short-term swings in stock prices of IT stocks may be a good opportunity to add stocks like

, and .”

Others said that markets are likely to face severe challenges for next 4-6 quarters, thanks to the weight of high expectations of growth.

Vaibhav Agrawal, Founder, Teji Mandi. IT stocks took a tumble this week extending their year-to-date losses to more than 25 per cent mirroring the sell-off that we had in Nasdaq.The increasing buzz over the looming US recession and that’s hurting the technology spending resulting in slowdown of growth for the IT Services. Hence, what has happened is that the sector is getting a macro pressure point, he added.

“If you look at management commentary and what’s going around, I think the order books, the outlook on orders and on revenues, the demand environment continues to be really positive,” Arora said.

The market making hypothesis about the sustainability of the cost pressures and recession, I do believe that it will come down in the next couple of quarters as these companies scale up their fresh recruitment and scaling the business and as the attrition settles down because this kind of attrition cannot continue for a long period of time.

Experts believe that as long as the structural demand environment is holding firm, one should not be worried. The IT pack, fow now, continues to remain laggard or sideway zone.

“I do believe that as long as the demand environment is good, customer demand is good they will come back and these companies have a history of dealing with all kinds of uncertain environments so it’s not new for them,” said Arora from Teji Mandi.

On the contrary, Nilesh Jain, Analyst – Technical and Derivatives Research, Centrum Broking said that the Nifty IT index continued its losing streak for the seventh consecutive week and also gave a structural breakdown.

“The momentum indicators and oscillators have reached extremely oversold territory which hints at some pullback that should be used as an exit opportunity,” he added with an anticipato on more pain in the sector.

Jain suggested investors to stay away from the IT pack and start focussing on the stocks including auto, FMCG and pharma pack in the near term.

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

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