Is it mean reversion for IT stocks!

Is it the end of the bull rally in IT stocks?  

The reversion began in early 2022 when markets started discounting the IT majors despite good quarterly results (barring Infosys), JP Morgan downgraded the sector a few days back, and yet another downgrade by Nomura yesterday came as a big blow to the already hammered sector. Nomura has cut the target for IT service majors – TCS, and HCL over concerns over overstretched valuations, tightening stance by FED, and unbridled inflation which is affecting the operating margins of corporates across the globe.  

The sectoral index S&P BSE IT tumbled 3.2%, 12.71% and 26.43% in 1 day, 1 month and YTD as compared to the benchmark Sensex’s loss of 0.6%, 6.10% and 9% for the same periods.  

While the IT majors have borne the brunt of the bearish sentiment ruling the markets, let's focus on other IT stocks which investors should keep an eye on.  

Tata Elxsi, the multibagger of 2021 continues to ride the tide and give gravity-defying returns in 2022. The stock has risen 40.59% YTD while in the last 1 month has risen 5.65% as opposed to the free fall of the sector and other IT major constituents. The company has reported a robust quarter wherein net revenue grew by 31.51% at Rs 681.74 crore and PAT expended by 38.94% at Rs 160.01 crore. The margins have also expanded by 125 bps at 23.47%. In the morning session, Tata Elxsi was among the top gainer in the sector, quoting at Rs 8295.10 up 2.1% or Rs 168.45.  

Cerebra Integrated Technologies has been buzzing on the bourses today in anticipation of strong Q4 numbers as the Board meets on Monday, May 30 to consider and approve Audited Standalone and Consolidated Financial Results for the 4th quarter and year ended March 31, 2022. At 10.45 am, the shares of Cerebra were quoting at Rs 58.05 up 2.7% or Rs 1.5 per share.  

eClerx Services announced its results for the quarter and year ended on March 31, 2022. The company reported consolidated net revenue for Q4 growing by 25.14% at Rs 591.67 crore on YoY basis and net profit of Rs 118.40 crore compared to Rs 98.39 crore showing a growth of 20.34%. The profit margin however took a hit of 80 bps at 20.01%. For FY22, the consolidated net revenue and net profit grew by 36.65% and 47.71% at Rs 2184.96 crore and Rs 417.76 crore, respectively. The stock has tumbled 5.3% in yesterday’s session and closed at Rs 2092.55. In the morning session, the shares of eClerx are trading at Rs 2051.80, a loss of 1.88% over its previous close.   

NIIT announced financial results for Q4 and the full year on Tuesday. The company reported consolidated net revenue for Q4 growing by 34.50% at Rs 374.98 crore on YoY basis and net profit of Rs 68.55 crore compared to Rs 48.31crore showing a growth of 41.9%. The operating margin however took a hit of 507 bps at 19.35% which was reflected in the huge sell-off in the stock registering a loss of 14.6% in 2 days. At the time of writing, shares of NIIT were trading at Rs 398, down by 3.52%.  

Birlasoft declared its robust financial result early this week wherein net revenue grew by 22% to Rs 1101.44 crore and PAT expended by 34.27% at Rs 132.90 crore. The margins have also expanded by 111 bps at 12.07%. The Board of directors has also approved the buyback of equity shares for an aggregate amount not exceeding Rs 390 crore (“Buyback Size”) at a buyback price of Rs 500 per share. The promoter group do not intend to participate in the buyback offer. At 10.20 am, it was trading at Rs 342.20 down 0.31% or 1.05 per share.