FPIs may see a dip in the IT sector

Foreign portfolio investor FPI favourites of IT stocks such as TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra could be under pressure in coming days due to concerns over the slowdown in client tech spending, if the recent FPI selling in the IT sector is to go by. Fortnightly data available with NSDL shows 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.

In oil gas, Rs 2,300 crore healthcare, Rs 589 crore, power Rs 3,198 crore, automobiles Rs 3,134 crore, and financial services Rs 2,790 crore were some of the 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. In March, the inflows have trimmed to 7,891 crore as of last week.

In March, the shares of TCS are down 6 per cent. The shares of Infosys have fallen 7 per cent, Wipro has lost 5.2 per cent, Tech Mahindra and HCL Technologies are flat in March.

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

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

A brokerage company named 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. It said that the IT companies highlighted higher macro uncertainties than 3 -- 6 months ago.

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

The bank believes that there is an opportunity to pass on the MCLR hike, which will boost the margin in the coming quarters, along with lagged repricing of deposits. The quality of advances remains relatively under control, with a constant moderation in asset quality ratios. The bank does not expect any challenges, as slippages have been under control, Motilal Oswal said.