IT Stocks Dampen Markets Mood After Infosys Halves FY24 guidance; Nifty IT Index Crashes By 5%

Bears dominated Indian markets on Friday due to sharp selling in pivotal index IT. Both Sensex and Nifty 50 dipped by nearly a per cent. Heavyweight IT stocks were in a selling hysteria after Infosys halved its FY24 guidance. The Nifty IT index crashed by nearly 5%, with Infosys, Persistent, Wipro, HCL Tech and Tech Mahindra emerging as top underperforming stocks. On the contrary, PSU bank stocks gained traction, while media and healthcare stocks were also in demand. Also, feeble Asian cues added to woes.

Sensex traded at 67,016.15, lower by 555.75 points or 0.82%, while Nifty 50 slipped by 145.85 points or 0.73% to trade at 19,833.30, at the time of writing.

Meanwhile, Nifty IT index shed 910.70 points or 2.92% to perform at 30,235.20. In the opening bell, the index fell by at least 1,444.7 points or 4.64% by touching an intraday low of 29,701.20.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services expected Infosys to be the slip between the cup and the lip. In the pre-market opening, he said, "Infosys' poor guidance of 1 to 3.5% revenue growth guidance for FY24 will drag the stock down and, perhaps, Nifty with it since Infosys has a 5.9% weightage in the index. The lacklustre performance of HUL with a meagre 3 % volume growth in Q1 can be another drag on the market."

Infosys shares traded at Rs 1,343.55 apiece down by 7.31% on the index. In the early trade, the decline was nearly 10%. Infosys takes the most beating after the tech giant trimmed its FY24 revenue growth guidance to 1.0%-3.5% in constant. While it expects operating margin to see 20%-22% growth.

Gaurav Bissa, VP, of InCred Equities said, "Infosys has witnessed a strong correction after it announced weak results. The stock has reversed from a descending trendline hurdle on the weekly charts. However, the stock is currently trading above the previous swing low of 1250. On long-term charts, the stock is trading comfortably above the 15-year ascending trendline breakout area suggesting the structure remains strong for the long term. In the short to medium term, the stock may oscillate between 1250-1500 range. Long-term investors can use this dip as a buying opportunity with a time horizon of 18-24 months for fresh lifetime high levels in Infosys."

Meanwhile, Axis Securities has recommended Sell on Infosys shares with a target price of Rs 1,300. The brokerage said, "Given the company's medium-term challenges on demand and uncertain supply-side constraints, we expect
Infosys to report moderate growth in FY24. We recommend investors SELL on the stock until uncertainties settle down."

Further, on the Nifty IT index, Persistent Systems dipped by 2.5%, followed by Wipro shedding 2.3%, HCL Tech and Tech Mahindra plunging by 1.8% and 1.4% respectively. The largest IT company in India in terms of market share, TCS also faced the wrath of bears and dived by 1.2%. Further, L&T Technology Services and LTIMindtree were lower marginally.

Among the positives, Mphasis and Coforge were top gainers with nearly 1% upside each. Coforge is up after reporting a healthy Q1 with a robust outlook. Axis Securities has recommended buying Coforge for a target price of Rs 4,910 given the company's strong growth potential backed by robust deal wins and superior execution capabilities.

Moreover, on the 50-scrip benchmark, L&T, Divi's Lab, ONGC, Apollo Hospital and Adani Enterprises were among the top gainers. While Infosys, Wipro, HCL Tech, Reliance Industries and Hindustan Unilever were top losers. Heavyweight RIL slipped ahead of its Q1 earnings.

Riches Vanara, Technical and Derivatives Analyst, Stoxbox said, "Reliance Industries Ltd is expected to report muted earnings in Q1FY24 despite steady consumer growth as it may be partly offset by a decline in its (O2C) business. Further, Utkarsh SFB has postponed its listing date to July 21 from earlier July 24. The initial public offering (IPO) of Utkarsh SFB received a massive response from investors, getting subscribed more than 100 times."

Vanara added, "The 50 index saw a muted opening for the trading day. It marked the day low at 19758 within the opening hour and saw a stronger intraday uptrend as it scaled higher to 19991 falling 9 points short of claiming the psychological mark of 20000. The index has immediate support of 5 DEMA currently trading at 19781 and sustenance above the same can attract further bullish momentum."

Vijayakumar said, "Investors should keep in mind the fact that at the current Nifty PE of above 20 based on FY 24 estimated earnings, there is no valuation comfort in the market. Barring the US, India is the most expensive market in the world now. At high valuations, some negative trigger can lead to sharp correction. But in the near-term, the party may continue."

On the global front, Asian markets were lower on Friday as investors digested Japan's consumer price index numbers for June. On the commodity front, Brent oil prices were broadly muted and were set to close flat as markets weigh lower U.S. crude inventories.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.