CHART OF THE WEEK 📈
One surprising fault-line in the recent market rout has been the crash seen in tech stocks. In the US, after years of exorbitant returns, the almost untouchable FAANG (and more) started to show cracks.
Facebook has seen a slowdown in revenue growth, Amazon's posted steep losses and a below-estimate revenue growth outlook, Netflix lost users and expected to lose more, Google missed street estimates; and Twitter is going through its own share of drama.
With this, after two years of a glory run, Indian IT stocks too fell dramatically. However, one can’t compare them to the FAANG just because they’re tech. So why is Indian IT falling?
60% of revenue for Indian depends on the US. With the US economy beating inflation, grappling with rate hikes, and seeing a slowdown, the outlook for Indian IT naturally deteriorates.
Post pandemic, Indian IT saw a spurt in revenue growth. However, with new macro developments, maintaining growth at levels seen in the last 2 years would be a very big challenge. Naturally, earnings downgrades and lower valuations are to follow.
Indian IT, despite strong revenue growth was already facing its share of problems, on the supply-side. High attrition, rising wage inflation and increasing retention costs were restricting growth and eating into margins.
While the near-term outlook for Indian IT doesn’t look rosy, the sector is poised to take advantages of digital spend and outsourcing in the long run.