Nifty IT index marginally up today

After seeing the price correction of yesterday, Nifty IT index is up by 0.6% at 1:50 p.m. Indian time today.  Yesterday, the index fell by 4.71%. IT stocks are seeing some price correction because their March quarter results have fallen short of expectations. Infosys has also lowered its sales growth expectations for FY 24 to 4% – 7%. This is lower than 10% that many were expecting.

An imminent economic recession in US is going to hurt IT companies. These companies depend on US for a large chunk of their revenues. Infosys in its March quarter results said that banking crisis in the US may have an adverse impact on its performance.  The company saw increase in project cancellations by clients, in the quarter.

IT companies have as their clients, companies from various sectors. During times of economic slowdown or recession, clients also cut down their IT spending. An indicator of lower IT spending is the decline in global Personal Computer (PCs) sales by almost 25% (y-o-y) in the March quarter. One reason for this decline is companies postponing investments in new PCs. If companies are postponing their investments in hardware such as PCs, they are likely to lower their expenditures in new software projects too. Samsung has said that due to decline in hardware sales, it is going to cut down the production of memory chips significantly, in the near term. 

IT stocks are currently trading at an average P/E ratio of 23.62.  Those that make up the Nifty IT index have given year-to-date total return of 0.45%. In the past one year these stocks have given a return of -19.2%.  Any further decline in their prices may also make them an attractive buying proposition for investors with long-term horizon of more than 1-5 years.