IT stocks crash: TCS, Infosys, HCL Tech & others wipe out Rs 1.6 lakh crore - Time to buy?

Shares of IT companies were seen bleeding on Friday following the muted guidance by Accenture in the latest fiscal year and plans for higher inorganic growth investments, which was seen as an alarm bell for Indian IT investors. It sparked the fear of mounting debt for the IT companies. Accenture's commentary suggests that AI is becoming an increasingly meaningful demand driver.

This led to a steep fall in the Indian IT companies, which tumbled down up to 9 per cent. Bluest of the blue IT counters like Tata Consultancy Services :td (TCS) and Infosys Ltd led the laggards. The former one was leading the pack in terms of mcap erosion, while the latter was at the top in terms of fall. Top 10 Indian IT companies wiped out more than Rs 1.6 lakh crore in just a few minutes.

Indian IT stocks selloff is a direct reaction to global tech giant Accenture trimming its full-year revenue outlook. By nudging its constant-currency revenue growth guidance down to 3-4 per cent, and its core commercial guidance down to 4–5 per cent, Accenture has effectively confirmed that clients remain highly cautious with their wallets, said Shashwat Singh, Fundamental Analyst at Bajaj Broking.

"Because Indian IT firms rely heavily on the same global pipeline for discretionary tech projects, this shift in Accenture's forecast serves as a macroscopic warning for the entire sector, prompting investor's selloffs,” he adds.

TCS, which dropped more than 6.5 per cent on Friday, saw its market capitalization falling more than Rs 52,000 crore, slipping below Rs 7.5 lakh crore mark. Infosys, which lost nearly Rs 40,000 crore of marketcap, slipped 8.6 per cent to Rs 1,030.35 for the day. HCL Technologies lost 6 per cent and nearly Rs 19,000 crore of market capitalization.

Persistent Systems (down 6.75 per cent), Tech Mahindra Ltd (down 7.02 per cent) and Wipro Ltd (down 4.3 per cent) saw a fall of Rs 14,750 crore, Rs 10,000 and Rs 8,230 crore in their marketcap during the early session. LTM saw its mcap falling by nearly Rs 6,800 crore on Friday. Mphasis Ltd, OFFS and Coforge Ltd dropped 3-7 per cent each and saw a Rs 1,300-3,200 crore of mcap loss.   

Despite material correction in the sector valuation led by increasing macro/geo-political issues and investor worry regarding declining role of SI (System Integrators) / GSP (Global IT Service Providers) in helping Enterprise clients to adopt AI, we reiterate being selective in the sector, said Sandeep Shah, Director - Research Analyst at Equirus Securities.

"We continue to recommend selecting stocks which has decent growth visibility through well balanced portfolio on the cost take out and discretionary/AI led transformational spend.  We prefer Infosys and TechM amongst large caps and prefer Mphasis, eClerx and KPIT Tech amongst midcaps on a relative basis," he added.

JM Financial believes that there is a risk to 3 per cent YoY cc industry growth for FY27. Pressure in the sector is likely to remain if earnings cut versus expectations continues in the near term. Accenture is trading 9 times one-year forward consensus EPS while TCS/Infosys is trading at 14 times/15 times  one-year forward consensus EPS, it said.

"We remain cautious on the sector and relatively prefer stocks underpinned by reasonable operational visibility ‒ relatively prefer a) Infosys in the top-6 names; Mphasis in the mid-tiers; and Sagility among the BPO names," JM added.