Bleeding tech stocks, Fed fears, and other factors behind 1.2% slump in markets

Both the benchmark Sensex and the Nifty lost 1.2 percent each. The Sensex fell 728 points to 59,702 points, while the Nifty erased 182 points to 17,645 points

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Equity markets logged in over 1.2 percent decline on April 17, the steepest in five weeks, led primarily by a slump in information technology firms, which was triggered by Infosys‘ guidance that fuelled concern over tech spending.

Both the benchmark Sensex and the Nifty lost 1.2 percent each. The Sensex fell 728 points to 59,702 points, while the Nifty erased 182 points to 17,645 points around 11.20am on Monday.

Many brokerages have downgraded Infosys after its fourth quarter results disappointed the Street, and cut its target price. JP Morgan has lowered the stock to ‘underweight’ and cut its target price to Rs 1,200 from Rs 1,500 a share. CLSA cut its target price to Rs 1,550 from Rs 1,800, Citi kept its target price to Rs 1,400 from Rs 1,675 a share, Nomura Research target price was at Rs 1,290 from Rs 1,660, while Bofa cut its target price to Rs 1,390.

“We believe FY24 will be a year of revenue growth disappointment. Increasing macroeconomic headwinds are likely to create challenges in terms of growth, as enterprises delay their decision-making and prioritise cost optimisation projects with upfront benefits, over transformation projects with back-ended returns,” Nomura Research said in a recent report.

Let’s take a look at the factors that drove the markets down today.

Slump in IT Stocks  

The Nifty IT index slumped over 6 percent after tech behemoths Infosys and Tata Consultancy Services Ltd posted weak earnings for the March quarter. Infosys declined 11 percent, its steepest fall in three years, to hit over a one-year low, shaving off Rs 70,000 crore of investors’ wealth. Many brokerages have downgraded the stock after Infosys said the sales growth will be just 4 percent to 7 percent this financial year because of client spending and uncertain demand environment due to failure of US banks.

Wipro and TCS lost 3 percent each, while LTIMindtree fell 8 percent respectively. Persistent Systems, L&T Technology Services, Coforge, Tech Mahindra, Mphasis and HCL Technologies declined up to 6 percent.

Fears of Further Rate Hike by Fed 

Retail sales in the US for March have experienced a more significant than anticipated decline of 1 percent month-on-month, exceeding the predicted decrease of 0.5 percent on-month. A detailed analysis of the numbers indicates that consumers are restraining from making discretionary purchases.

However, the core retail sales (excluding auto and gas) declined less than anticipated during March. Despite the weaker retail sales figures and lower inflation prints (CPI and PPI), the markets are now pricing in an 80 percent probability of a 25bps hike in May’s policy, up from the previous week’s 70 percent, according to analysts.

This shift in market expectations is due to remarks made by Fed member Waller, who expressed support for tightening measures in the battle against inflation. As a result, the probability of a 25bps rate hike during the May meeting has been revised higher.

Surge in Covid Cases

Investors are also worried over the recent spate in fresh Covid cases. India recorded 9,111 new coronavirus infections, while the active cases increased to 60,313, according to the Union health ministry data updated on Monday. The death toll increased to 5,31,141.