In the first fortnight of April, FIIs sold IT stocks worth around Rs 4,700 crore to buy power and banks. This comes after March shareholding pattern revealed that FII stake went up by 24 bps to 12.7% in TCS, 26 bps to 6.96% in Wipro, 41 bps to 34.11% in Infosys, 23 bps in HCL Tech and 96 bps to 35% in case of Coforge.
During the quarter, FIIs were net sellers in stocks like LTTS, LTIMindtree, Mphasis and Tech Mahindra. On the other hand, mutual funds took a more bearish stance on the Indian IT sector in Q4 by cutting stakes in 6 out of top 10 stocks – Coforge, HCL Tech, Infosys, LTIMindtree, Persistent Systems and Tech Mahindra.
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Common buyings by both MFs and FIIs during the quarter were TCS and Wipro. In the case of LTIMindtree and Tech Mahindra, both the big boys of Dalal Street were on the sell side.
However, after being a bull in Q4, FIIs were seen taking a U-turn in the first two weeks of April amid fading hopes of a recovery in FY25.
While the names of IT stocks which FIIs sold this month are not known yet, experts believe it could be the Tier-I IT stocks. After falling 7.5% in March, the Nifty IT index is down about 4.4% so far in the month.
Barring a small upside of 1% in TCS and 6% in Persistent, all 10 constituents of Nifty IT index have lost value so far in the year. LTIMindtree, Coforge and Mphasis have seen double-digit declines.
What should investors do?
While TCS management guided for FY25 revenue growth to outstrip FY24, Wipro guided for -1.5% to +0.5% IT Services revenue growth in Q1 FY25.
Infosys’ FY25 revenue guidance of 1-3% YoY in cc terms was so disappointing that Kotak Equities said it expects normalised growth only from FY26. Nomura lowered its FY25-26 EPS estimate by 2-3% driven by lower revenue and margin outlook.
Many domestic investors are sounding bearish on the outlook for IT stocks for the next few months.
“We do not believe that they are at the end of the tunnel. It will take some more time, especially the BFSI segment which is the mainstay for most of our IT companies. Unless that picks up, I do not think they will have too much to talk about in terms of numbers. And there is so much change going on in the industry with generative AI and all of that. So, how these companies will play on those things, I think we will have to give some more time,” said Daljeet Singh Kohli of Vasuki India Fund.
Global brokerage BNP Paribas, however, believes that while discretionary demand remains slow, the sector appears to have bottomed, and valuations are already pricing in most of the risks.
(Data inputs: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)