InvestorQ : Why did IT stocks fall so sharply in the markets during the week?
Mahima Roy made post

Why did IT stocks fall so sharply in the markets during the week?

Aashna Tripathi answered.
2 years ago

Large IT stocks witnessed a strong correction with companies like TCS losing nearly 6 to 7% in just 2 days. In fact, the IT index overall was down by nearly 3% over. There were broadly two reasons for this sharp fall in IT stocks.

Weak results and guidance by Cognizant

Cognizant is not a listed company but for a long time it has been one of the largest software players in the IT space at par with the large IT players like TCS, Infosys, Wipro, HCL Tech etc. Cognizant reported 15% fall in net profits for the March quarter due to severe pressure in the BFSI (Banking and Financial Services) segment. Most Indian IT companies are also largely servicing the BFSI sector and that put pressure on all Indian IT companies. But the bigger challenge was the guidance. In fact, Cognizant reduced its guidance of growth for the next year to less than 5%. That was a key reason for the IT stocks correcting.

Dollar weakness was another reason for IT stocks correcting

Another reason for the weakness of IT stocks has been the dollar weakness. When the US Fed decided to maintain rates at the same level the dollar weakened (higher rates help the dollar strengthen). When the dollar weakens and the rupee strengthens it is negative for IT companies because they still earn most of their revenues in US dollars and a weak dollar means they earn less rupees in India for each dollar brought in. This also contributed to the weakness in the technology stocks.