The Indian stock market’s Nifty IT index experienced a notable downturn on Thursday, falling by nearly 3.5%. This decline in the IT sector can be attributed to several factors, primarily linked to recent earnings reports from major players in the technology space, including Microsoft and Meta Platforms.
Earnings Reports and Market Sentiment
Microsoft’s Earnings Report:
Although Microsoft reported impressive Q3 earnings with a 16% year-on-year revenue increase, totaling $65.59 billion, concerns arose regarding its artificial intelligence (AI) capacity constraints.
Microsoft’s vice president of investor relations, Brett Iversen, indicated that the company would not resolve these capacity issues until the second half of its fiscal year. This news raised doubts about the company’s growth potential, particularly in the fast-evolving AI sector.
Meta Platforms’ Warning:
Meta Platforms issued a cautionary note about a significant increase in infrastructure expenses projected for 2025 during its third-quarter earnings call. This warning added to the negative sentiment surrounding tech stocks, as rising costs can impact profitability and growth.
Impact on Domestic IT Stocks
The adverse news from these tech giants negatively influenced Indian IT stocks, leading to substantial declines across the sector. Notable losses included:
Persistent Systems: Down over 4%
Mphasis: Down over 3%
Tech Mahindra, L&T Tech, TCS, Coforge, HCLTech, and Infosys: Each down over 2%
Wipro and LTIMindtree: Down over 1%
At around 10:12 AM, the Nifty IT index was reported at 40,220.15, reflecting a decline of 3.48%, while the broader Nifty50 index fell by 0.37% to 24,250.9.
Domestic Guidance Adjustments
In the backdrop of these global trends, some domestic players made adjustments to their revenue growth forecasts:
HCLTech raised its lower revenue growth guidance for FY25 by 50 basis points, now estimating growth between 3.5% and 5% due to increased client spending.
Infosys also revised its guidance upwards, now expecting revenue growth of 3.75% to 4.5% for FY25, up from 3% to 4% previously.
Despite these positive adjustments, analysts pointed out that the modifications were not particularly encouraging. JM Financial noted that the current guidance implies a Compound Quarterly Growth Rate (CQGR) for Q2 between -2% to +2%, indicating potential stagnation in growth.
CEO Insights on Market Demand
TCS’s CEO, K Krithivasan, remarked on the prevailing cautious sentiment, stating that while growth markets continue to expand, the demand environment remains tentative. This aligns with Wipro’s expectations for its IT services business, which anticipates revenue between $2.6 billion to $2.7 billion, translating to a sequential guidance range of -2.0% to 0.0% in constant currency terms.
Conclusion
The recent downturn in the Nifty IT index is a reflection of both global influences from major tech earnings and domestic adjustments in revenue expectations. As the market navigates these challenges, investor sentiment will likely remain cautious, emphasizing the need for strong performance and strategic adaptations among IT firms. The ongoing focus on AI and infrastructure investments will also be critical as companies aim to address capacity constraints and rising costs in the sector.
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