In this recent ongoing brutal correction (Which resulted in almost 1500 points fall in a week), One Sector which has corrected incredibly but has not yet been noticed by the investing community is the Nifty IT sector.
As you all can see, It fell from 16000 to 12000 levels during corona crash period and from there has risen up to almost 40k (which is almost 2.3 times)
Possible Reasons for the fall ?
One likely reason which kind of seems obvious is that Nifty IT is mimicking the fall in US and global tech indices like Nasdaq (which is linked to interest rate hike and rising yields due to inflation which causes risky high growth based asset classes to correct )
One more reason can be that they are falling under their own weight. (Too much of rise in too little time)
If we want to have a positive way of looking at things, One reason which is not that obvious but kind of possible is that the tech stocks, which benefited the most from Pandemic based restrictions from last two years. are indicating that the pandemic is coming to an end
It is extremely very likely that this fall might actually be a small blip in the larger scheme of things and the best of the sectoral move is done for the time being. But make no mistake about it, IT Stocks have created immense wealth to the shareholders in the past and selected ones will continue to do so in the future.
A big rally often finds corrections of nearly 10% or 20% in it’s way. I will advise everyone to continue holding quality scrips as this sector was still performing during lockdown times even when some others crashed to new lows.
As a trend follower my personal opinion is -
If you want to know the reason of rising price or falling price there are so many variables to consider , each time of the rise and fall the reason may be different there are so many global factors that can affect the market or the instruments , all the arguments we can make but no one can really predict how far the rally will go or how far the fall will…
But there is a very simple solution to the problem which was purposed by a great Martial Artist -
I had not heard the quote and did a search and found this. This is for others who have not heard of the quote. Quite a good one.
Quote from Bruce Lee
Be water, my friend". When Lee says to be “formless”, he means that people shouldn’t allow themselves to be trapped in a certain mindset. Instead, a person should be able to adapt to certain situations, grow, and change; that’s how one can adopt the qualities of water.
Rightly said. I like holding onto stocks, and in the last 2 years, the majority of my returns are from this sector. Given the correction, that was somewhere expected given the global tech performance. Guess a comeback is possible once the correction settles. Not speaking based on my hopes but experience.
One great thing about IT stocks is most of them are extremely cash rich.So, yeah being a long term investor makes absolute sense. getting dividends and bonus shares more often than not compared to other sectors is an added bonus.
It’s always good to be a long term investor provided you are not timing your holdings just for the heck of it and have some serious analysis. We can ride the downswings for short term as this sector has always had a high probability of creating wealth and compounding in the long term.
In my limited view, the sell off is due to people thinking USA is going into recession and Europe is going through hardship due to Ukraine war and assuming that in case USA goes into recession, IT spending will decline. I feel the sell off is purely based on these two parameters. This is inspite of INR depreciating. IT sector is one sector to hide when INR depreciates to USD.
For an investor and an existing shareholder, TCS is available at 52 week low. Their order book for full year 2022 is 34.6 billion USD. I am sure to execute this many project it would take one to two years and during this time, I am sure TCS will not be twiddling their thumbs thinking of how to buy and sell sun flower seeds from Ukraine and reading JP Morgan reports, but will be getting other contracts as well. Look into the dividend distribution of TCS for the last several years. They are like Bank FD with quarterly interest payments, every quarter they give out dividends.
I am sure as far as order book is concerned, the same applies to other three IT majors.
For a investor or shareholders, this is the best opportunity to accumulate. Never seen TCS at its 52 week low value.
Disclaimer: I am invested in IT stocks and hence my views will be biased.