Tag: IT Sector

IT Sell-Off Impact: Valuations of most companies fall below their long-term averages

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Subdued performance and weak guidance from TCS and Infosys – India’s top two software services companies have dragged its peers along with them, even before they declare their respective quarterly results.

The Nifty IT index saw its biggest fall in three years on Monday. The steep fall in shares of technology companies have also brought down their valuation multiples below the ten-year averages.

Barring Tata Consultancy Services (TCS) and HCLTech, the top IT companies are currently trading at below their long-term averages.

Among the top IT firms based on market capitalisation, Wipro, L&T Technology Services and Infosys are trading at about 3.4 percent to 12.3 percent discount to their long term averages, according to Bloomberg data.

While the one-year forward price-to-earnings multiple of Wipro has almost halved from its December 2021 peak, the multiples of TCS and HCLTech have corrected by 30 percent during the same period.

Also Read: Infosys Q4 Results: Shares see biggest single-day drop in over three years after multiple downgrades

The top ten IT companies together lost more than one lakh crore of market capitalisation on Monday with Infosys alone contributing Rs 57,000 crore. On Monday, shares of Infosys plunged as much as 15 percent in intra-day trade, followed by LTIMindtree with a 10 percent drop. TCS and Wipro fell four percent each before recovering towards the close of trade..

As many as 15 analysts who track the Infosys stock on Bloomberg, including that of JPMorgan Chase & Co., Macquarie, Nomura Citigroup and CLSA have lowered their ratings on the stock post Q4 results.

Moreover, analysts are now the least bullish on Infosys since September 2017. As of Monday, 18.4 percent of the 49 analysts who track the stock on Bloomberg recommend a “Sell” against 10.2 percent before the Q4 results.

With Monday’s fall, the Nifty IT index has declined six percent so far in 2023 after last years’ 26 percent drop.

Also Read: Expect 1-2% revenue growth for Indian IT in Q1FY24, says Macquarie analyst

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect 1-2% revenue growth for Indian IT in Q1FY24, says Macquarie analyst

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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IT stocks plunged in trade on Monday (April 17) after analysts reset expectations following disappointing Q4 earnings from Infosys.

Infosys shocked investors by missing its full-year growth guidance for the first time in six years. Concerns over deal cancelations and ramp-downs across key segments dragged the stock and its peers lower. While the stocks saw sharp recovery from their day’s lows, Infosys ended the day down 9.40 percent at Rs 1,258.10 per share.

Speaking to CNBC-TV18, Ravi Menon, IT & Technology analyst at Macquarie Group, said he expects a 1-2 percent revenue growth for Indian IT in the first quarter of FY24.

“We have not heard of any major project cancellations. Channel checks indicate that people have put capex on hold especially in the wake of Silicon Valley Bank. However these should start coming back in May or June. So I would think we should look at somewhere between 1-2 percent growth in Q1 for most of these firms,” Menon said.

Following the poor Q4 earnings, brokerages have brought down their EPS estimates. On an average, EPS estimates have come down by 7-10 percent. Nomura has a neutral call on Infosys, CLSA is bullish on the stock but has downgraded it from a buy to outperform rating.

Stocks like Infosys, Wipro, Mphasis today hit fresh 52-week lows.

So, is the pain going to be short-lived or is it going to be prolonged? Currently, consensus is building towards a double digit revenue growth in FY25 and a margin expansion on account of easing supply side situation. However if there is no operating leverage because of lower revenue then costs continue to remain sticky and margin expansion may not take place.

In terms of valuations, Infosys is currently trading at 19x, while TCS is trading at 23x.

Also Read: Infosys bets big on Generative AI, says it is integrating the tech into its projects

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Here is how spending cut by US and European banks can impact the Indian IT sector

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Although the Indian benchmark indices BSE Sensex and Nifty 50 ended on a positive note today, the Nifty IT index closed down O.98 percent., following the banking sector woes in the West.

Banking, financial services, and insurance (BFSI) is the largest vertical for Indian IT services companies, contributing significantly to their revenue. After the bankruptcy of Silvergate, Silicon Valley Bank, and Signature Bank in the US and the merger of Credit Suisse and UBS in Europe, banking and financial services (BFS) clients are expected to reduce discretionary tech spending in the first half of FY24. Analyst are now cautious that the banking sector woes can have a negative the impact on the growth scenario of Indian IT companies.

According to Kotak Institutional Equities, large US and European banks were big spenders on technology. They spent aggressively on Cloud migration and technology upgrades, so that they could compete with the digital first fintech companies.

However now as these banks are under stress, Kotak believes their focus will be on capital preservation. And therefore they might turn prudent on technology spending. Therefore Kotak says there could be a pause or a slowdown in the pace of digital and even Cloud programs.

Kotak anticipates March quarter earnings for the IT sector to be weak, with 1-2 percent cut in growth rates. While in the June quarter, that is Q1FY24, they expect a moderate uptick. However they expect things to normalise from Q2FY24 onwards.

According to Ambit Capital, IT companies with exposure to Credit Suisse include TCS, Wipro, Cognizant and Tech Mahindra. While IT companies with exposure to UBS include TCS, Wipro, Cognizant, Infosys and HCL Tech. Mphasis has exposure to First Republic Bank, while Infosys, TCS, Cognizant also have small exposure in Silicon Valley Bank.

Also Read: Does the global banking crisis put Indian banks at risk? CNBC-TV18 analyses

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The Nifty IT index is set for its worst year since the global financial crisis – should one buy the dip?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Nifty IT index has been the worst performing sectoral index in 2022 with declines of over 25 percent. The last time the Nifty IT index fell over 25 percent in a year was back in 2008 – the year of the Global Financial Crisis.

However, one must note that the decline has come after five straight years of gains, particularly in 2020 and 2021, when the index gained over 50 percent in each year.

However, the question that everybody on the street is asking is Have IT stocks corrected enough? Should one buy into the downturn? Nobody knows how long will the downturn in IT stocks last. But are they presenting an attractive opportunity or are likely to fall some more?

Here are four reasons why IT stocks could weaken further and four reasons why you may consider buying into this downturn. Let’s begin with the bear case first:

Bear case

On the bear side, what could be the things that go wrong – tech budget is a key issue. Tech budgets are typically announced in January, sometimes in early February, may decline.

Two – there is a risk that tech budgets this time may be short-term and they may not be annual budgets. You may have companies saying that perhaps this time, we are going to outline a tech budget only for three months, six months, because there is too much uncertainty.

There is also a risk of spending divergence if the performance of a company deteriorates as the year goes by. If a company has allocated a certain sum for its tech budget, the actual spend could be much lower if deterioration in performance takes place.

Point two – The US economy is the big elephant in the room. There is a very big co-relation between the growth of Nifty IT companies with that of the US GDP growth. In case the US economy gets into a severe recession, there are chances of IT companies seeing cuts in their Earnings per Share (EPS) forecast.

An analysis from Credit Suisse in the table below explains this co-relation.

Premium Valuations is the third argument on the bear side. Despite the de-rating seen recently, Indian IT companies are still trading at a premium-valuation compared to the pre-Covid average.

Lastly, Midcap IT companies can be far more vulnerable due to two reasons – first being client concentration. They depend a lot on a few large clients, and if there is weakness in any of those, their revenues can get disproportionately affected.

Second is vendor consolidation, which means if a client would earlier give five companies smaller deals each, it may just opt to give away all the deals to one large company. Midcap IT companies also depend a lot of short-term deals, which have been hurt due to the uncertainty.

Also Read: Top Indian IT stocks may drop 10-27%, HCL Tech may be worst hit: Credit Suisse

Bull case

On the flip side, the bottom may not be formed just yet. But in the next three to six months, things may get worse before they get better, so one can buy into the downturn.

IT stocks have been consistent wealth creators. If you look at the three-year, five-year and 10-year CAGR returns of these companies, you would see that on an average, they have given returns of close to 20 percent.

Names like TCS, Infosys are not created in the day. TCS has a topline of nearly $25 billion, something that cannot be replicated in a year or two. These companies have proven themselves in the digital transformation wave that is currently ongoing.

Additionally, IT companies have gone through a time correction of almost a year as well as seen a significant de-rating in valuations and hence, we could be in the final stages of an IT downturn.

Finally, the fourth reason is cloud adoption and migration, which is a multiyear tailwind. Even if things slow down, it cannot be reversed. So this is a cycle which is expected to last over a couple of years. So it can pause, but it cannot be reversed.

We’ve presented you the bull case as well as the bear. The ball now lies in the court of the investors to decide which side of the fence they wish to be on.

Also Read: IT growth to further slow down in 2023 but these two tech giants may fare better: Nomura

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Big tech bleeds in 2022 — All eyes on what 2023 holds for IT giants amid recession worries

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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2022 has been a brutal year for tech giants around the world, be it Amazon, Google or Meta in the US or Indian firms like Infosys and Tata Consultancy Services (TCS).

Apple’s stock is down about 18 percent in 2022 and it must be noted that it was one of the better performers. Facebook owner Meta, Amazon, Netflix and Google’s parent company Alphabet have all performed far worse, with Meta plunging nearly 65 percent in 2022.

Other tech giants on the Nasdaq index, such as chip giant Nvidia and Elon Musk’s Tesla are down 40-55 percent this year.

What’s bothering the IT sector?

What is hurting the IT giants are the rising rates of interest being announced by central banks around the world including the US Federal Reserve and the Reserve Bank of India (RBI), macro economic uncertainties i.e. concerns surrounding an impending recession and global pressures.

Recession worries hurt Amazon and Apple and concerns about the strategy shift, for example Meta, going all in on Augmented and Virtual Reality or Netflix now embracing advertising have all hurt these companies.

Back home, 2022 marked a sharp decline in stock prices of Indian IT giants as they moved in step with their global counterparts. As things stand now, this year could be the worst since 2008 when the Nifty IT index was down 54.6 percent, the closest was in 2011 when the index slumped 18 percent.

The decline comes against the backdrop of de-rating price–earnings ratio as global interest rates went up with some earnings per share (EPS) cuts as growth forecasts moderated.

TCS now trades at a forward multiple of 26 times versus peak of nearly 32 times and the trend follows for Infosys, HCL Tech and Wipro trading at much reduced valuations than their peaks.

Tech sector marred by layoffs

The next big story of 2022 was the tech layoffs. According to layoff tracking website layoffs.fyi – data as of December 18, 2022 shows 986 tech companies laid off workers and 1.5 lakh employees were let go.

Also Read | Active job postings from Meta, Apple, Amazon, Netflix, Google ‘low’ to ‘nearly none’: Report

That includes biggies like Meta, Google, Amazon that laid off thousands of employees as they look to cut costs in the face of rising global uncertainties and challenging macro environment.

What 2023 holds for the tech sector?

Analysts estimate growth to slow further. Global brokerage Nomura expects the US dollar revenue growth to slow down to 8 percent in the 2023-2024 financial year from 12.7 percent in the 2022-2023 fiscal.

Another question is if the belt tightening i.e job layoffs will continue in 2023? The answer is probably yes, as many companies which have not announced job cuts yet are likely to do so next year.

Also Read | IT growth to further slow down in 2023 but these two tech giants may fare better: Nomura

HP, for instance, is looking to pull back on its workforce while reports suggest Google is looking to axe 10,000 employees next year.

While these developments are only from multinational tech giants, there are so many smaller companies and startups where there is not only a hiring freeze, but there have been big job cuts too.

Biggest newsmaker of 2022: Apple

i-Phone maker Apple has for the first time moved production to India. Apple has been assembling smartphones in India since 2017, but until this year, the i-phone-maker used manufacturing facilities in India to assemble older generation handsets and legacy models.

This is the first time that it will produce i-phone 14 in the same calendar year as its release, with a lag of a few months compared to China versus years before and India has just gotten started.
According to JPMorgan, every fourth i-Phone will be made in India by 2025.

What is the driver of this big shift? — The unrest in China, reduced dependency on China and an affirmation of India’s production-linked incentive (PLI) schemes.

Also read: Career cushioning replaces quiet quitting as the new workplace trend

According to India Cellular and Electronics Association (ICEA), India is likely to export handsets worth $9 billion in FY23 compared to $5.8 billion in FY22, which is a whopping jump of about 55 percent.

The next big question — Can India become the new smartphone manufacturing factory for the world, by uprooting China?

Also Read | Mass layoffs: What the Indian law says about severance package, notice period and more

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Saurabh Mukherjea explains why it doesn’t make sense to turn bearish on IT stocks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Market expert Saurabh Mukherjea says it does not make sense that several market participants are turning bearish on the tech sector as Indian IT services companies will continue to get more deals in the pipeline.

“The West is only 1/3rd of the way through the shift to the cloud. There is work to be done, so it doesn’t matter what the GDP growth in America, Sweden, or the UK is. The Indian IT services companies will carry on getting plenty of work, and on the back of that, they will post healthy results for many years to come,” he told CNBC-TV18 on Friday.

When firms are concerned about macro headwinds like an impending recession in America, Marcellus Investment Managers Founder and Chief Investment Officer Mukherjea highlighted that the US recession has historically been a positive for India. In the last 40 years, India has never had a stock market move without a recession in America.

According to him, the reason for this is two-fold. “One, it (US recession) conks off oil prices and two, it brings down the cost of money. The cost of money argument this time round perhaps isn’t as powerful because of the inflationary backdrop and the rate hikes in the West, but the oil price relief is already palpable,” he explained.

Also Read: Infosys shares top Nifty gainer after margin beat, deal wins drive analyst upgrades

Keeping in mind the local vibrancy of the economy, the festive season demand, overall tax collection buoyancy, and macro buoyancy, Mukherjea’s suggestion is to remain focussed on buying high-quality Indian companies instead of macro forecasting.

Talking specifically about L&T Tech, the expert said it is not an IT services company but an engineering R&D provider, which sounds superficially similar to IT.

“It’s a different type of company to say a TCS, but small and midcap IT. Historically, we have stayed away, and I don’t think we will change our point of view. It’s better to focus on the giants. We have TCS, but Infosys is doing very well as well,” he said.

Also Read: Here’s what TCS bosses said on margin guidance and plans of hiring more | Q&A

Mukherjea also spoke about consumption booming in specific sectors, the rise in car sales while two-wheeler sales are declining, and market demand for informal labour, which he thinks is still under pressure. He also said that Indian companies that sell formulations abroad are not investable.

Watch the accompanying video for more details.

Catch the latest stock market updates on CNBCTV18.com blog here

Also Read | HCL Tech Q2: Revenue guidance raised while margin expectations toned down

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Three new jobs are created for every one IT job, says expert

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the world started to work from home during the pandemic and digitisation became a pressing priority, IT firms recruited in large numbers but data since the April to June quarter shows the hiring spree has slowed down. However, the tech sector continues to be the primary hiring sector for white-collar openings, a report said.

According to a report by specialist staffing firm Xpheno, the IT sector collective of services, products and internet-enabled sectors, put out nearly 121,000 jobs in September 2022, as against 165,000 in August 2022, meaning a 27 percent drop in volume on a month-on-month basis.

“With September 2022’s drop in volume, the current FY average drops below 2.8L active jobs per month. This is also the longest slide in active jobs since March 2020,” it highlighted.

Meanwhile, the IT sector’s contribution to overall active openings dropped to 58 percent, as against the 80 percent plus range it maintained over the last year, the report titled ‘Active Job Openings Outlook’ points out. In fact, this 58 percent is also the lowest contribution that the tech sector has recorded over the last 2.5 years.

Also Read | Techies, e-commerce employees likely to get over 10% salary hike in 2023: Survey

Yet, it must be noted it is still the sector with the most white-collar openings. This is even as active jobs from IT services recorded their lowest count in over 17 months.

All tech cohorts contributed to the drop in active jobs in September 2022, the report said, adding that tech hiring volume and velocity continue to be impacted by global and local market sentiments.

Significantly, the attrition rate at Wipro fell marginally for the second consecutive quarter to 23 percent for the three-month period ended September 2022, the tech giant announced on October 12.

Mayur Taday, Chief Business Officer, TeamLease Services, is of the view that the tech sector not only creates jobs for itself but for others too. According to him, tech/ IT jobs are high-paying jobs with average salaries at entry level being Rs 8-10 lakh per annum.

“Three new jobs are created for every one IT job. The disposable income is high. This surplus amount flows into the economy, thereby driving higher consumption. This further leads to job creation in sectors like banking, retail, telecom, consumer durables, automobile, real estate etc,” he explained to CNBCTV18.com.

Also Read | Hiring slows but India Inc looking for ‘efficient leaders’ to beat global blues: Report

Sachin Alug, CEO, NLB Services, also noted the technology sector contributes nearly 9 percent to the national GDP, and accounts for 51 percent of services exports.

Also Read: TCS says attrition has peaked but supply constraints for IT sector remain

“It is also one of the leading employment generators. While there is a drop in the growth rate of demand for tech talent by the technology sector, hiring is still on a positive trajectory indicating nil or no impact yet on overall job creation,” he said.

Also read: HCL Tech adds 8,359 employees, attrition rate unchanged at 23.8%

According to Gartner estimates, IT spending in India is expected to increase to $101.8 billion in 2022 from an estimated $81.89 billion in 2021, indicating the demand for tech talent will continue to stay positive. In fact, the demand for tech talent from the non-tech sector has been growing at almost 15 percent quarter-on-quarter, Alug added.

Also Read: 11 vacancies for every one techie applying for a job in US: NASSCOM

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Q2 FY23 numbers for the IT sector will be good, says Motilal Oswal’s Manish Sonthalia

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

11 vacancies for every one techie applying for a job in US: NASSCOM

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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There has been a nearly 60 percent jump in computer occupation job vacancies to 1.4 million in the past year in the United States. However, the National Association of Software and Service Companies (NASSCOM) on Monday said that the key issue is talent gap.

“There are 11 job vacancies in the computer occupation field for one IT worker, who is applying for that job. This has grown from six in the last year to 11,” Shivendra Singh, VP & Head-Global Trade Development, NASSCOM, told CNBC-TV18.

According to Singh, the problem can be bridged in two ways. The first is to work on growing the talent piece in the US, for which the tech industry has spent more than a billion dollars working with nearly 130 colleges and universities to upskill and get more employees.

The other is to get short-term high-skilled visa workers, and those numbers vary for 2021 and 2022 as many employees have been working from home.

Also Read | Techies, e-commerce employees likely to get over 10% salary hike in 2023: Survey

He explained that non-immigrant workers play a critical role until the time demand and supply match in the US. “We are very keen that we get the demand and supply match so that the dependency on visas comes down drastically,” he said.

His remark comes at a time when the appointment wait time for first-time non-immigrant visitor visa applicants to the United States in India has surpassed over 700 days, which means a waiting period of two years. Those planning to travel to the United States may have to wait till October 2024 to obtain a visiting visa.

Meanwhile, Indians with H-1B visas working in America cannot come home for personal reasons as they are not getting timely appointments to get their visa stamped at the US Consulate in India to return to America.

Also Read | IT hiring to see over 20% jump but e-commerce and edtech witness slowdown: TeamLease

If a person leaves the US to make a trip to India, the person runs the risk of losing their job if they cannot make it back in time to the US within a certain period.

According to NASSCOM’s Singh, the challenge is that there is an interview process, and the moment that is required, there is a delay. The second is the limited appointment window, as a result of which individuals are unable to get the appointment and hence, the tremendous delays.

Also Read: Investor interest has moved from IT to banking, says Gautam Duggad of Motilal Oswal

“The critical issue is that work gets hampered as a result of this. In terms of B-1 and B-2 visas, where there is a tremendous delay, including DropBox facilities, which were supposed to speed up things, but even there the appointment window is short. Companies are not able to get people on time due to which projects tend to suffer,” he told CNBC-TV18.

Most large companies are facing this issue. “We are told that around September-October, things should improve,” he said.

Singh also pointed out a pent-up demand, reflected in the travel requirements since relaxations began.

Also Read: Slash variable pay or cut jobs? IT firms stuck between a rock and a hard place

Also Read: Moonlighting techies share how they juggle multiple jobs

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow