If you have been following the market lately you might have noticed that while other sector-specific indices are rising, Nifty IT has been falling without any reason, or is there a reason? Let's find that out with us in today's pill.
For the uninitiated, sectoral indices are as the name suggests sector-specific stocks listed on a particular exchange, eg. IT, Real estate, Metals, Banks, etc. All except Nifty IT were up on 11th October 2021. Whereas Nifty Bank was 38293.80, up 1.37% up; the broader index Nifty 50 which consists of Top 50 stocks was seen breaching the 18000 mark, the Nifty IT was 35179, down 3.36% from the previous day close. Many factors contributed to this downfall such as the earnings release of Q2, rising bond yields, and much more. Let's look at each of these in detail.
1) Just Missed
TCS, the major contributor of Nifty IT, nosedived to close at Rs 3,685.60, 6.35% lower than the previous day's close. This is partly due to the release of its Q2 earnings on 10/10/2021 post-market hours. While it did report a net profit of Rs 9,624 crore for July-September, a 14.1% rise from the same period the previous year (YoY), the revenue grew 16.8% year-on-year to Rs 46,867 crore. Here is what some brokerage houses have to say about the earnings and their views on the stocks post-fall
Kotak Institutional Equities
TCS is better positioned than peers to manage margin headwinds. The brokerage house has cut FY22-24 earnings per share estimates by 3-4%. It has maintained an 'Add' rating on the stock with a target price of Rs 4,100.
Goldman Sachs said
Earnings were below estimates on revenue, margin, and order book front. It has maintained a "Buy" rating on the stock with a target price of Rs 4,657. The brokerage sees a strong deal pipeline given the strong underlying demand momentum.
ICICI Direct expects
Margins to improve by 190 bps over FY21-23E. "We value TCS at Rs 4,530 i.e. 34x P/E on FY23E EPS"
As seen above from some of the most notable brokerage houses, the crash is temporary in nature. And it is no secret that whenever a heavyweight stock falls, other stocks experiences the effects.
2) Rising Bond Yield
Here is what we de-coded, if you closely look at IT stocks, most are high-value, and recently federal (US) bond yield hit an all-time high to touch 1.6%, it was at 1.173% in August 2021. If you still haven't figured it out, the money is being directed from although high return equity-yet-risky market to a low-but-safe debt market. And the fall in tech stocks or high-value stocks is global with NASDAQ-100 technology, the US equivalent of Nifty IT closing at 8667 marginally above the previous day's close of 8626.
If you are an optimistic person, you might see this as an opportunity to add some quality stocks to your long-term basket, or on the flip side, you might take this as a warning of an even greater upcoming fall. It depends on your perspective. Well, that's it from our side in today's pill, Do let us know your views on the above-presented points we love feedbacks and an engaging audience.
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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.