TCS, Infosys, Wipro, HCL Tech, TechM shares: FPI selling intensifies in IT sector. What's next?

Foreign portfolio investor (FPI) favourites IT stocks such as TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra could be under pressure in coming days amid emerging concerns over slowdown in client tech spending, if the recent FPI selling in the IT sector is to go by. Fortnightly data available with depository NSDL suggests FPI selling intensified in the IT sector, with the institution category pulling out Rs 3,777 crore worth IT shares in the fortnight ended March 15 against Rs 708 crore outflows in the fortnight ended February 28.

Selling was also observed in oil & gas (Rs 2,300 crore), healthcare (Rs 1,637 crore) and consumer durables (Rs 589 crore). Power (Rs 3,198 crore), automobile (Rs 3,134 crore) and financial services (Rs 2,790 crore) were some sectors that saw FPI inflows.

The data holds importance as FPIs were net buyers of domestic equities to the tune of Rs 12,575 crore in the first fortnight of March against an outflow of Rs 5,294 crore in February and Rs 28,852 crore in January. That March inflows have trimmed to Rs 7,891 crore as of last week.

Shares of TCS are down 6 per cent in March so far. Infosys shares have fallen 7 per cent; Wipro has lost 5.2 per cent; shares of Tech Mahindra and HCL Technologies are flat in March so far.

Before the emergence of SVB and Credit Suisse crisis in the West, banking and financial institutions were quite aggressively on cloud migration and tech upgrades and the outlook on 2023 spends was reasonable for most large US banks. But the current predicament for the sector in developed markets threw a spanner in the works, said Kotak Institutional Equities. BFSI segment accounts for at least a third of revenues of top IT players.

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Nirmal Bang Institutional Equities, which has been keeping a bearish stance on IT sector since April 2022, said buying IT stocks now will give sub-optimal returns going ahead, as it foresees 7-37 per cent potential downside for its IT universe.

Another brokerage Nomura India, which hosted top five IT firms namely Infosys, TCS, HCL Tech, Wipro and Tech Mahindra, last week, said it was cautious on the India IT services sector. The IT companies, it said, highlighted higher macro uncertainties than 3-6 months ago.

As far as the domestic banking sector goes, SBI, Motilal Oswal Securities, said does not see any significant challenges to the Indian banking system.

The bank believes that there is an opportunity to pass on the MCLR hike, which along with lagged re-pricing of deposits, which should boost margin in the coming quarters. "Quality of advances remains fairly under control, with a constant moderation in asset quality ratios. Slippages have been under control and the bank does not expect any challenges," Motilal Oswal said.

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