As revenue growth concerns resurface, IT stocks plummet

13 Jun 2022 , 12:47 PM

On June 13, information technology stocks were among the worst performers on Dalal Street, as concerns about the sector’s revenue growth resurfaced amid growing inflation in important areas such as the United States and the European Union.

The Nifty IT index fell 3.2%, lagging behind the benchmark Nifty 50 index, which fell about 2.5%. Despite the US Federal Reserve boosting interest rates by 75 basis points in the previous three months, the May inflation report indicated that prices grew at their quickest rate in more than 40 years.

Investors are concerned about the higher-than-expected inflation reading because they feel it will lead to the US Federal Reserve hiking interest rates more aggressively in future meetings, potentially triggering a recession in the US economy in the next 12 months.

Russia’s protracted war in Ukraine has produced decade-high inflation in the European Union, which has stifled economic growth in the Eurozone. Economists believe that the European Central Bank’s recent shift in stance to quickly hike interest rates beginning in September would push the EU deeper into recession, exposing the euro area’s monetary system’s vulnerability, as it did in 2012.

Despite investor and analyst fears about demand growth, corporations have remained steadfast in claiming that the current global macro-economic uncertainty has had no impact on IT service demand. Even the rupee’s drop to historic lows versus the US dollar, which is generally a benefit for the IT sector because it reports results in dollars, hasn’t calmed fears. On June 13, the rupee hit a new low of 78.20 against the US dollar.