Sea of red... IT index crashes another 3%! Time to buy the dip?

New Delhi: After a short-lived recovery, pain was back in IT stocks on Wednesday as Nifty IT index plunged over 3.4 per cent. IT counters saw heavy broad-based selling amid global equity selloff triggered by higher-than-expected US inflation numbers.

Further, brokerage firm Goldman Sachs downgraded Infosys, TCS and Tech Mahindra to sell from buy citing slowdown in dollar revenue growth.

Among the top-10 contributors of the weakness in Sensex, five belong to the IT sector only. IT bluechips were trading with big cuts, dragging the indices lower in early trade.

Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro and Tech Mahindra plunged 4-6 per cent each during early session, before making a partial recovery.

Other counters including Coforge, LTTS, Mindtree, Tata Elxsi, Cyient, L&T Infotech, Mphasis, Persistent Systems, Zensar Technologies, Sonata Software, NIIT, Birlasoft and Firstsource Solutions plunged up to 8 per cent.

Despite a steep depreciation in rupee, pushing it to new lows, software exporters have remained out of favour. Majority of them rule out expectations of a sharp recovery anytime soon, but are bullish on the space in the long run.

At present, the valuations are comparatively better, but not compelling enough to take a serious interest for substantial investment, says Tejas Khoday, CEO and co-founder of FYERS.

"Another bout of correction, around 10 per cent, would make investors gravitate towards this sector once again," he adds.

"I would rather buy the IT space because it has come down to attractive valuations. The past margin worries are nowhere," says independent market expert Mahantesh Sabarad.

The rising inflationary pressures and anticipation of aggressive rate hike from the US Fed does not bode well for the IT sector, which plunges in tandem to the US' tech barometer Nasdaq composite.

IT has been the worst performing sector in the last one month and six months the Nifty IT index dropped 6 per cent and 22 per cent, respectively during the periods.

Major IT stocks are not only down by up to 50 per cent from their 52-week highs, but have wiped out about Rs 3.5 lakh crore from investors kitty on a year-to-date basis.

One continues to be invested in tech, says Hiren Ved, Co-founder, CEO, Director and CIO, Alchemy Capital. "We were very clear that in IT services, we have moved from the largecaps to specialised companies which structurally are growing faster."

Deepak Shenoy, Founder, Capital Mind said that it would not be a great time for IT companies even this quarter and the next, but from the March quarter onwards, till the next year when budgets are reallocated.

"IT companies will do well and perhaps stock markets will typically lead this anticipation by about two or three months. This might be an interesting time to take IT on for the next five to six years as a cycle," he said.

Brokerage firm HDFC Securities believe that margins have bottomed in Q1, with medium-term tailwinds of normalisation in attrition/sub-con, utilisation and pricing.

Margin of safety is higher for tier-1s, whereas Mid-tier IT resilience is reflected in continued growth premium. "We maintain a constructive stance on the sector," it added picking up Infosys from largecaps and Persistent Systems from midcap IT space.``

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