IT stocks could remain under pressure in the short term; Should you buy, sell or hold IT stocks?

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IT stocks could remain under pressure in the near term as growing recession concerns in the US and Europe could erode corporate earnings growth. The information technology sector is also among the worst performing countries on the stock exchanges, given weak corporate earnings and fears of a possible recession in the United States, which will lead to a slowdown in national majors. computing.

“India’s IT industry remains sensitive to the US and European markets, which together contributed around 86% of FY22 revenue,” a CRISIL report said.

Rate hikes by the Federal Reserve, inflationary pressures and shifting geopolitical developments could dampen revenue growth and are key things to watch, the report said.

According to Bloomberg consensus estimates, analyst earnings estimates for FY23 and FY24 have been cut by an average of 3-3.5%. TCS revenue has been revised down 2.62% over the past three months. Earnings per share (EPS) estimates for Infosys and HCL Technologies were revised down 3.5% each during the period. Wipro and Tech Mahindra saw their EPS downgrade by 9% in three months.

IT stocks have corrected by more than 25% on average since the start of the year. Stocks such as Wipro, Tech Mahindra, L&T Infotech, Mphasis and Coforge have plunged more than 40% since January 1.

Omkar Tanksale, Senior Research Analyst, Axis Securities, said: We believe the IT services industry is facing near-term challenges, leading many IT services companies to squeeze operating margins and may face to a slowdown in North America and Europe. Inflated attrition levels. The exponential rise in demand for services has resulted in higher attrition and higher salaries (employee expenses) in recent quarters. This resulted in lower operating margins. The potential slowdown in the world’s largest economies could lead to discretionary customer spending cuts, which would lead to slower IT services revenue growth. This scenario could put pressure on the Indian IT services industry in the short term. However, long-term IT spending remains resilient.

Tanksale said: “We recommend HOLD IT stocks during uncertain times.” He further recommends Infosys, Tech Mahindra, Persistent Systems, Mindtree, and Affle Ltd.

Infosys
-Robust investment in a digital wallet to capitalize on demand
– Strong market share gains in the BHSI sector and the automotive industry
– Beat growth with its Indian peers 3 years in a row

Tech Mahindra
-The deployment of 5G is a great opportunity
-Improving the business of the company
-The constant addition of better offers improves visibility

Persistent system
– Strong product and platform expertise
-The pipeline of better deals, which offers high visibility
-Proven as an ISV player
Mindtree
-Strong strategy to capitalize on demand
-Improved digital wallet capabilities
-Strong capabilities in CPG and travel portfolio
-Reduce dependence on the main customer account

affle
– Strong CPCU business model increasing strong offers from larger logos
-Added robust devices with greater geographic presence
-Improved margins thanks to an increase in international activities

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