Shares of information technology companies were among the biggest laggards on Dalal Street on June 13 as concerns over the sector’s revenue growth re-emerged amid rising inflation in key markets like the US and the European Union.
The Nifty IT index tanked 3.2 percent, underperforming the benchmark Nifty 50 index, which was down nearly 2.5 percent.
The May inflation print in the US showed that prices rose at their fastest pace in more than 40 years during the month despite the US Federal Reserve raising interest rates by 75 basis points in the past three months.
The higher-than-expected inflation print has spooked investors as they believe it could result in the US Federal Reserve raising interest rates more aggressively in the coming meetings, which could possibly trigger a recession in the US economy in the next 12 months.
In the European Union, Russia’s ongoing war in Ukraine has triggered decade-high inflation, which has restricted economic activity in the Eurozone. Economists fear that the recent shift in stance of the European Central Bank to raise interest rates aggressively from September could further plunge the EU into a recession while exposing the fragility of the euro area monetary system like in 2012.
Despite the concerns from investors and analysts alike over demand growth, companies have so far remained steadfast in suggesting that the ongoing global macro-economic uncertainty has had no dent on demand for IT services.
“The management noted that it has not seen any indication of demand slowdown in order book and pipeline, and that it could still be early for various global macroeconomic indicators of a slowdown to show up in the numbers,” brokerage firm Nomura noted after its meeting with the HCL Technologies management.
Similarly, bites have come from the heads of Infosys, Tata Consultancy Services and other major IT services providers in India. Yet, the commentary has done little to soothe investor anxiety.
Even the rupee’s fall to record low levels against the US dollar, usually a positive for the IT sector which shows its earnings in dollar terms, has failed to ease concerns. The rupee fell to a record low of 78.20 against the US dollar on June 13.At 11:25am, shares of Wipro, Infosys, TCS, Tech Mahindra, HCL Technologies, Mindtree and Coforge were down 2-5 percent on the National Stock Exchange.