Worst day for Nifty IT in two months after EPAM Systems cuts guidance with a warning

Indian IT shares suffered heavy losses on Tuesday, a day after US-based EPAM Systems cut its guidance citing deterioration in the near-term demand environment, sending shockwaves across tech stocks around the globe. Losses in TCS, Infosys, Wipro, Tech Mahindra, HCL Tech, and Persistent Systems weighed on the IT index.

The Nifty IT fell as much as 2.6 per cent during the session — its worst intraday slide since April 17 — as all of the gauge's 10 components faced selling pressure.

Shares in India's five largest IT companies by market value — Tata Consultancy Services (TCS), Infosys, Wipro, HCL Tech, and Tech Mahindra — fell as much as 2-3 per cent each.

In the mid-and small-cap segments, Persistent Systems, Mphasis, and Coforge tumbled 5-6 per cent. LTIMindtree and L&T Tech dropped around three per cent each.

What's worrying investors?

EPAM Systems switched to revenue guidance for 2023 to contraction of two per cent in constant currency terms from its earlier guidance of three per cent growth after the first quarter.

Here are three important things to know:

• Q2 revenue guidance reduced to $1.16-$1.17 billion from $1.195-$1.205 billion
• Q2 EPS guidance trimmed to $2.33-$2.40 from $2.38-$2.46
• Full-year revenue guidance at $4.65-$4.8 billion as against $4.95-$5 billion previously

“We have come to understand that pipeline conversions are occurring at slower rates than previously assumed and we are also seeing some reduction in the total pipeline,” EPAM CEO said.

Given steep cuts to both 2023 revenue and margin estimates for clients of Infosys, Tech Mahindra and Wipro, the near-term demand outlook for these companies could be under pressure, Jefferies said last week.

“Aggerate revenue outlook of top clients year-to-date (YTD) has not changed, profit outlook has worsened, suggesting that client profitability is the key determinant of IT spends. Among verticals, Communications, Tech, and BFSI seem to be the worst placed,” the brokerage added.

EPAM shares tumbled 22 per cent on Monday to their lowest level recorded in almost 14 months. Cognizant and Accenture shares dropped 3.9 per cent and 2.2 per cent respectively. Besides, the American depository receipts of Infosys and Wipro fell up to 2.5 per cent on Wall Street.

Indian IT stocks have remained under pressure

The Nifty IT index has already lost four per cent of its value in the past one year, in stark contrast to a rise of about 12 per cent in the Nifty headline index.

In 2023 so far, the IT index is down about one per cent, as against a two per cent gain in the 50-scrip blue-chip gauge.