Today the Indian stock market was in a downtrend, the Nifty 50 index fell from 2.07% to 17102.58 points and the Sensex fell from 2.25% to 56958.91 points till the market closed.
Till today’s market closing Nifty IT was down by 4.57% to 32688.24 points, Nifty Bank was down from 2.39% to 36531.25 points and Nifty Financial Services was down by 2.28% to 17000.25 points.
Today in early trade Tata Consultancy Services (TCS) is down by 3.24% to Rs 3519.25, Infosys is down by 6.78% to Rs 1611.28 and HDFC Bank is down by 4.12% to Rs 1395.98.
Russia-Ukraine Crisis
Due to the ongoing crisis between Russia and Ukraine, oil prices are increasing and its direct impact is on inflation in the global economy.
According to the latest Indian government data, retail consumer price inflation is 6.95% and wholesale price inflation is 14.55% in March 2022.
Spike in Covid cases and inflation
Due to the high inflation level interest rate hike in the US market due to which US 10-year bond yield is running at its 4 year high. The S&P 500 also closed down 1.52% on Friday.
According to reports, increasing Covid cases in China due to which a complete lockdown has been done in Shanghai from 1 April 2022. In India too, there has been a recent spike in the daily cases of Covid and due to this, the expectation of another wave of Covid 19 has increased.
FY22 Quarter 4 results below expectations
According to experts, the biggest reason behind today’s market fall is disappointing quarter 4 results from large-cap heavy weightage like TCS, Infosys, and HDFC Bank.
All these three companies have huge weightage in the Nifty 50, Sensex, Nifty IT, and Nifty banking indices.
Currently, the total combined weightage of HDFC Bank, Infosys, and TCS in Nifty 50 is around 22.52% whereas in Nifty IT only Infosys and TCS have a weightage of 53.77%.
HDFC Bank has 28.86% weightage in Nifty Bank and 22.71% weightage in Nifty Financial Services.
In Tata Consultancy Services (TCS) quarter 4 financial year 22 results, the company showed revenue growth of 15.5% on a year-on-year basis but against it, profit growth was 7% on a year-on-year basis. Due to this, the margins of the company declined.
The operating profit margin of Tata Consultancy Services (TCS) declined by 168 basis points in quarter 4 of financial year 22 as compared to the same quarter last year.
According to reports, the major reason behind the decline in margin is the rising employee cost.
TCS’ employee expenses were up 20% on a year-on-year basis in Q4 FY22. This is happening because of the high attrition going on in the IT sector. TCS has an attrition rate of 15.30%, Wipro has an attrition rate of 22.70% and Infosys has an attrition rate of 25.50%.
Infosys also reported revenue growth of 18.5% on a year-on-year basis in Q4 FY22 but year-on-year net profit growth was at 7.9%.
Infosys’ operating margin declined by 300 basis points on a year-on-year basis in Q4 FY22 and the attrition rate of Infosys stood at 25.50% which is at an all-time high.
The increasing cost of sales whose majority portion comes from employee expenses and this component increased year-on-year by 25.50% in Q4 FY22.
HDFC Bank’s results in Quarter 4 Financial year 22 were also lower than the Analyst’s expectation.
HDFC Bank’s NIM (Net Interest Margin) came down to 4% in Quarter 4 Financial Year 22 results as compared to 4.1% in Quarter 3 Financial Year 22 and 4.2% in Quarter 4 Financial Year 21.
HDFC Bank CFO Srinivasan Vaidyanathan said that HDFC Bank’s asset mix has shifted towards a higher rate segment after covid19. Higher rate loans have less risk and hence banks are able to earn less interest in them, which is why HDFC Bank’s yield declined.
Experts believe that HDFC Bank’s NIM (Net Interest Margin) may decline further in the future as HDFC Bank may increase its expenses from the current level to maintain the retail growth momentum.
Apart from this, experts also believe that the post covid IT sector was running at very high valuations and the current PE of the companies in this sector was 30% to 40% above their long term medium PE.
Therefore, experts believed that the valuation of the IT sector may soon see a major reversal. And this margin decline can be the trigger of this main reversal.
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This article is only for education purpose and the author has his own views and research, so if you invest in these stocks/forex/Virtual Digital Asset then do it at your own risk and do the research yourself before investing.
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