Nifty's worst performer this year faces biggest fall since 2008. Rebound on cards?

The stock market has been obsessed with high-growth tech companies whether in India or the US -- until it's suddenly not. And when the mood changes, as it did this year, the unrelenting brutality is there for the world to see.

Investors will remember 2022 as the year when the narrative around tech stocks cracked, ending their years of dominance. Though India remained resilient through the global rout and recouped losses in most sectors, including tech, this significant underperformance from prominent IT names has caused a lasting dent on Dalal Street. The Nifty IT index has emerged as the worst-performing sectoral index in the calendar year 2022. This decline comes after five straight years of annual gains.

Once the darling of investors, shares of IT major Wipro have cracked 47% this year, making it the worst Nifty performer in 2022. Geopolitical risks, including the Russia-Ukraine conflict, recession worries, concerns around margins after acquisitions like Capco and Rizing, and disappointing quarterly results have dampened the outlook for the stock.


The largecap IT major has given the worst returns since the 2008 global financial crisis when it tanked 55%. It is after two years of double-digit gains that the stock will once again end in the red.


Tech Mahindra, Divis Labs, HCL Tech, Infosys, Tata Motors, and DRL are other stocks that have cracked up to 42% this year. Around 18 stocks from the 50-share pack have given negative returns in 2022.

"The reason why Wipro has done worse than peers is that the guidance they gave was comparatively weaker than others," said Kranthi Bathini, equity strategist at WealthMills Securities.

The company gave a revenue growth guidance of 0.2% for the October-December quarter (Q3FY23), much lower than Street's expectations, on the back of macro uncertainty and geopolitical issues. This was lower than the Q1 guidance of 3-5%.

Bathini said that historically Wipro had been a high-beta stock when compared to top tech names and that is one of the reasons its underperforming but that said valuations look attractive at current levels.

This brutal year for tech biggies is now drawing to a close with little conviction that the outlook is brightening anytime soon.

"We remain cautiously optimistic about the sector. In our view, stock price appreciation in the forthcoming quarters will broadly be a factor of earnings growth as we see limited opportunities of rerating in the industry," said HDFC Securities.

Margin pressure has peaked out and is expected to improve hereon as attrition and subcontracting are normalising, it said, adding that it is factoring a PAT CAGR of 10% over FY22 to FY24.

Jefferies expects revenue growth for Indian IT services firms to moderate by 250 bps to 7% in CY23/FY24 due to a tightening of client budgets, reprioritisation of tech spending and delayed decision-making amidst an uncertain macro environment.

While aggregate revenue growth for IT firms during the 9 months of CY22 has been strong at 18% YoY CC, margins for IT firms touched decade-low levels of 18.9% in Q1 of FY23 mainly due to wage pressures.

(With inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)