Foreign Funds Pull Out of IT Stocks

Foreign investors started pulling out from the top Indian IT companies as concerns about a slowdown in earnings and the threat of a recession grew following the collapse of three US banks.

According to the most recent shareholding data, foreign investors decreased their ownership of Infosys, the second-largest software services company in India, from 44.57 per cent to 43.08 per cent in the sixth consecutive quarter of divestment. In the March quarter, FII holding in Tata Consultancy Services, the largest software exporter in the nation, decreased to 12.72 per cent from 12.94 per cent in the previous quarter’s sell-off.

Other IT firms like Tata Elxsi Ltd, Tech Mahindra Ltd, Zensar Technologies, LTIMindtree, Mastek, Mphasis, L&T Technology Services Ltd, Birlasoft, and Affle India Ltd also saw a consistent decrease in FII stakes from the previous quarter. Affle India experienced the bleeding for seven quarters while the withdrawal from Tech Mahindra persisted for nine consecutive quarters.

The country’s top IT firms, TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra, all reported weak financial results that fell short of market expectations as a result of the foreign investors’ divestment, which had a significant negative impact on their quarterly earnings. They also expressed uncertainty about the short-term outlook, which had a sizable impact on net additions for the fiscal 2023 period. The ongoing financial crisis affecting US regional and European banks as well as the unfavourable macroeconomic environment may be to blame for the downturn.

According to NSDL data, the sell-off was at its worst in the March quarter, when foreign institutional investors (FIIs) withdrew roughly Rs 7,978 crore from the information technology sector. However, Wipro Ltd. and HCL Technology defied the trend by reporting a surge in foreign money flow. Foreign investors returned to Wipro in the March quarter, increasing their stake from 8.67 per cent to 8.77 per cent after seven consecutive quarters in which they decreased it. The FII holding for HCL Tech increased from 18.29 per cent to 18.92 per cent sequentially.

The Global brokerage firm BofA recently stated that the global economic slowdown, which is particularly affecting the IT sector, may put earnings growth at risk. Because of this, it has declared that IT is still its top underweight, indicating a gloomy future for the industry.

Brokerage firm Citi updated its preferred list and removed Infosys due to its unfavourable outlook on the IT industry. As a result, all areas of the firm’s coverage have been downgraded to sell or neutral. IT services have been designated as underweight by the brokerage house.