Informist, Friday, May 20, 2022

By Vivek Kumar and Sreejiraj Eluvangal

MUMBAI – Concern in the market over the impact of macroeconomic factors such as high inflation and rising interest rates are exaggerated, said Tech Mahindra Ltd, adding that such reactions do not reflect in actual client commentaries.

Speaking to Informist in an exclusive interaction, Rohit Anand, a senior vice-president for finance at Tech Mahindra, said he would characterise some market reactions to weak earnings from some major retailers in the US as a "little bit of an overreaction".  

"When we look at our pipeline, when we look at some of our client discussions, it's not really getting this severe reaction as what we're seeing. So some of the reactions are always exaggerated," said Anand, who will take over as Tech Mahindra’s Chief Financial Officer on Jun 1. 

Indian IT stocks saw substantial corrections on Thursday after major US retailers such as Target Corp and Walmart Inc reported weak quarterly earnings this week and slashed their profit outlook for the year amid inflationary pressures. 

The weak profit projections fuelled fears of US companies cutting their IT budgets, in turn affecting Indian service providers. 

"I think the reactions are a little extreme. Obviously, we know some of the issues related to inflation, etc, in the markets. But I don't think there is anything that sort of augurs for us to be concerned about," chimed in Jagdish Mitra, the chief strategy officer and head of growth of the company. 

Mitra explained that IT services are not just in demand during the so-called good times of high demand, but they also help in cost optimisation in a situation when there is cost cutting and reduction in discretionary spends. 

"For us, both the large bill as well as the overall pipeline from the US and Europe seem extremely positive. It is among the highest that we have ever had," Mitra said during the interaction.

Adding fuel to the concern about growth are worries over valuation. JP Morgan cut its rating for the sector to 'underweight' and said Indian IT stocks were the most expensive services stocks globally.

Growth stocks, like those of technology companies, tend to be hit worst in a rising interest rate environment. The US Federal Reserve has already raised key rates twice this year and has hinted it may be more aggressive if inflation shows no signs of cooling off. 

The Nifty IT index slumped nearly 6% to close at 28352.15 points on Thursday. This was the worst day for the index since the aggressive sell-off seen in March 2020 when COVID-19 pandemic first struck the world. 

On Thursday, shares of Tech Mahindra fell 5.4%, in line with those of Infosys Ltd and Tata Consultancy Services Ltd.  End

Edited by Akul Nishant Akhoury

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