Overseas fund managers have been dumping IT stocks since the beginning of last year on concerns over recession and lower technology spending in the US and Europe. The Nifty IT index declined 25% in 2022 compared to a 1% gain by the Nifty index.
Though a weaker rupee and lower attrition have helped the IT companies improve their margins a bit, weakness in revenue growth is expected in 2023, according to analysts.
“The risk for IT services stocks is continued revenue weakness in H2FY23 followed by a tepid start to FY24,” said Nitin Padmanabhan, analyst at Investec. “This could bring down Tier-1 growth expectations to 6-7% vs. 8% currently, leading to a potential contraction in PE multiples.”
FPIs’ sectoral exposure to metals and mining increased from 2.05% in December 2021 to 3.57% in December 2022. Similarly, their allocation to auto and auto ancillary stocks jumped to 5.35% from 4.07% last year.
Other than IT stocks, FPIs have reduced their exposure to capital goods and textiles stocks. Both these sectors underperformed last year. FPIs sold shares worth ₹61,000 crore in financial services and ₹12,900 crore in consumer durables stocks in 2022.
FPIs have sold shares worth ₹1.5 lakh crore in the secondary market in 2022 after selling shares worth ₹55,000 crore in 2021.
