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Indian Indices Trade Marginally Lower; IT Stocks Witness Selling
Thu, 8 Jun 11:30 am

Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the IT sector and telecom sector witnessing maximum selling pressure. Metal stocks are trading in the green.

The BSE Sensex is trading down 34 points (down 0.1%) and the NSE Nifty is trading down by 5 points (down 0.1%). The BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 64.36 to the US$.

Trading near their lifetime highs, the Indian Indices are witnessing volatility today. Most of this is seen on the back of weak cues from global financial markets.

Stocks in the Information Technology (IT) sector are witnessing selling pressure today. Shares of Tata Elxsi, Tata Consultancy Services (TCS), MindTree, Infosys and HCL Technologies are among top losers in the IT index today.

The above fall comes after the IT index saw an uptrend this week. The BSE IT index gained around 2.6% on Tuesday.

One shall note that Trump's recent protectionist measures related to jobs in the US had threatened to disrupt the IT industry.

This is because large Indian IT companies, on an average generate more than 50% of their revenues from the US clients, as can be seen from the chart below.

Will Trump Mania Impact IT Companies Revenues from US?

But as my colleague Tanushree mentions in her 5-Minute WrapUp, the investors' reactions to IT stocks were more out of perception than actual reality.

Though there is no doubt that there will be a fundamental change in the way business is done in the IT industry, it turns out that most of the IT firms were gearing up for this change already.

IT firms have started to adopt measures like hiring more locals in the US, getting more work done from India or other offshore locations, cutting down on low-margin clients, and stepping up automation.

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All these measures will surely have an impact on profitability margins in the near term. However, in the long term, companies with niche product or service offerings will survive.

Most of the companies have started focusing on other markets and gradually reducing their dependence on US.

So as long as you aren't worried about the revenue guidance in the coming quarters, you need to do just one thing: Stay focused on valuations.

In the news from global financial markets, investors are closely tracking the European Central Bank's (ECB) policy meeting and UK elections.

The consensus is that ECB will keep the interest rates unchanged. However, market participants are focusing on how the central bank may alter its economic assessment and policy guidance in light of a strengthening eurozone economy.

The ECB has been pouring money into the eurozone to boost inflation from a near-deflationary level.

In our view, a big crisis is brewing within the eurozone. And this is going to have major consequences for the global financial markets.

While there are many positive developments taking place, the area's still a mess. First came the Grexit saga. Then there was Brexit. Now it's Italexit.

A recent issue of Vivek Kaul's Inner Circle (requires subscription) presents an intriguing insight on Italexit from our global team of experts in London and other major world centres.

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