Silicon Valley Bank collapse sends midcap tech stocks into the red

The Nifty IT benchmark index suffered a 2 percent drop on Tuesday, fuelled by worries over the impact of the collapse of Silicon Valley Bank (SVB) in the US.

The decline in the IT index impacted mid-cap tech stocks the most, including Coforge and Mphasis, both of which suffered significant losses. Over the last five sessions, Coforge has experienced a 10 percent decrease in value, while Mphasis has seen an 11 percent drop over the last four sessions.

Despite reassurances from US President Joe Biden about the safety of the US banking system, the effects of SVB's collapse are still being felt, and the situation remains unsettled.

Both companies have exposure to US regional banks as clients, which were affected by the collapse of SVB. Coforge has exposure to Fifth Third Bank while Mphasis has exposure to First Republic Bank, as per CNBC-TV 18 report.

Fifth Third Bank has lost 30 percent over the last week, but has stated that it was not vulnerable to the tech industry downturn like SVB.

“We are in a position of strength, with a strong balance sheet - capital, liquidity, securities positioning, and granular & stable deposits which have continued to grow," the company added.

Similarly, First Republic Bank, to which Mphasis has an exposure, lost 80 percent over the last week and was also put under review for downgrade by Moody’s.

According to the rating agency, First Republic Bank’s share of deposits that exceed the Federal insurance threshold make its funding profile more sensitive to rapid, large withdrawals.

“If it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses," Moody’s said. The bank’s available-for-sale and held-to-maturity securities made up more than a third of its common equity tier-1 capital as of December, it added.

The banking, financial services and insurance (BFSI) segment contributes nearly 30-35 percent of the total revenue of Indian IT services, is expected to face the cost-cutting brunt with analysts saying that the SVB episode will be a reason for concern even if does not cause any systemic risk. The recent developments may lead to banking clients procrastinating on IT spending decisions, given the capital constraints, according to CNBC-TV18.

The budget cycle of the calendar year 2023 is also expected to be delayed.

On Tuesday, the share price of Coforge closed 4.5 percent down on the NSE at Rs 3,902 apiece while Mphasis closed 3.15 percent lower at Rs 1,900 apiece.