IT firms step in to bolster share prices

More Investor-friendly Measures

- Nifty IT index underperformed the benchmark index in FY23

- Recent sell-off in IT scrips irks managements

- IT firms to support their share prices

- Wipro announced Rs12,000-cr buyback at 19% premium

Bengaluru: Indian IT companies are likely to come up with many capital allocation moves including buybacks, high dividend payout and bonus share issue among others as the sector faces derating risks.

Amid revenue growth projections for FY24 coming down to pre-pandemic levels or even lower, shares of most IT companies have fallen in recent months.

Especially, stocks of large-cap IT firms have seen a quite a bit of selling by investors in recent months, though it has recovered a bit in the last month. Nifty IT index has underperformed the benchmark index during last financial year and it may not able to improve its performance in the current fiscal given the weak growth prospects of the industry.

“The sector faces derating risks. That is the reason we are witnessing buyback announcements by some companies to lend support to the share price,” said an industry source.

Last month, Wipro announced a buyback worth Rs12,000 crore at a 19 per cent premium to then market price. The company’s share price has risen around six per cent in the last one month despite tepid growth guidance for the first quarter of FY24. Earlier, US brokerage firm JP Morgan has said that it has an underweight stance on the Indian IT sector as the technology services companies remain at continuous risk of earnings de-rating and downgrades.

“TCS and Infosys’ very disappointing Q4 prints have brought this lingering concern to the fore. Revenues for the largest Indian Techs + Accenture suggests that Covid skewed the tech spend trajectory - pushing it out in CY20/FY21 and brought it forward in CY21-22/FY22-23. Current trends display tech-spend is mean reverting,” JP Morgan wrote in a note to clients. Rating agency Crisil has projected the Indian IT services industry to grow around 10-12 per cent in FY24, a fall of 7-9 per cent from the previous fiscal. The revenue growth guidance of many large IT firms is lower than the industry average. After a surprise fall in sequential revenue growth in Q4, Infosys has guided a 4-7 per cent revenue growth for FY24, in constant currency terms.

Noida-headquartered HCL Tech has projected to grow its revenue in the range of 6-8 per cent. Even management commentary from TCS & Wipro indicates that these firms may not able to clock a double-digit growth rate in FY24.

“Industry revenues over FY19-23 average 6-8 per cent, suggesting Covid was a short-term skew as opposed to a permanent change driver,” JP Morgan has written.

Against this backdrop, many Indian IT firms- both big and mid-tier- are likely to consider several investors’ friendly moves for supporting share prices of their companies.