India (Commonwealth Union)_ Foreign institutional investors, or FIIs, have been progressively withdrawing money from equities of Indian IT businesses despite Wall Street’s contempt for tech stocks, but not as quickly as rats exiting a sinking ship. FII ownership in Wipro was 9.83% at the end of the June 2021 quarter, but it is currently just 6.58% after the foreign investors liquidated 33% of their position.
As FII holdings decreased from 23.22% in the June quarter of last year to 17.7% in the September quarter. HCL Tech is the second-worst hit company in the group. By progressively selling off 22% of the shares they owned, FIIs in the instance of Tech Mahindra reduced their stake from 36.15% in June 2021 to 28.2%.
Stock prices have also been severely impacted by FIIs’ withdrawal. The Nifty IT index, which is down around 26% this year, is the poorest sector performance, with Wipro leading the fall. The shares of the company with its headquarters in Bengaluru are down more than 47% from their 52-week high. Similar to HCL Tech, Tech Mahindra has lost over 41% of its market value since its peak. TCS and Infosys are both trading 22% below their corresponding highs. Following the strong fall, some investors believe that large-cap IT companies are undervalued, while others believe that the worst is still to come due to concerns over a slowdown in growth and a worldwide recession.
Veteran fund manager Prashant Jain acknowledged that the IT industry is excellent for investing in and has some of the top firms in India, but he advised caution because valuation multiples seem to be rising in the near future. “The main issue, in my opinion, is the size of the industry, which was expanding at 7-8% in monetary terms before COVID. Because of COVID, the base declined for a whole year, necessitating an urgent need to implement digital technology. High growth rates were observed the previous year. But nobody is certain if growth rates actually return to where they were before Covid,” he told ET Now.
Infosys is the top selection for international brokerage CLSA, with a target price of Rs 1,800. Despite Nomura’s lower rating on TCS, it does have.
