Frontline IT services firms suffer big losses as Covid-19 spooks stock markets

The fear of an economic slowdown has spooked the stock markets worldwide, with the information technology services companies' stocks performing poorly. Most firms' shares fell by more than 10% this week as the novel coronavirus or Covid -19 spread far and wide in Europe and North America, the two most important markets for such companies.

These two regions account for around 70% of the revenues of IT services companies.

On Friday, Kotak Institutional Equities cut the growth forecast of the $190 billion software services export industry by 2-4% to about 3-8% growth across companies for the financial year ending March 2021.

"Covid-19 intensified in developed markets with many clients issuing travel advisories and instituting work-from-home measures and the deterioration in the health of clients of IT companies that will potentially result in spending controls and reduction in budgets," the Kotak report said.

TechCircle had earlier reported that Indian IT services firms had taken measures to contain risk and ensure business continuity. However, with a looming economic slowdown affecting several industries, the sector is now looking at lower technology spends by customers.

During the week, Mumbai-based TCS, which is the country's largest software exporter, saw its share price fall by 19%. Bengaluru-based Infosys, the second-largest IT services exporter, saw its shares tumble by 16%.

The other large firms such as Wipro, HCL Technologies, Tech Mahindra and Mindtree saw their share prices fall by 12%, 14%, 16% and 18% respectively.

According to Kotak, clients across verticals have not pulled projects or programmes for now. But this could change since the allocation of budgets to new programs starts picking pace in March/April.

"Any delays in allocations will result in companies reporting a weak June 2020 quarter. We note that June is a seasonally strong quarter and weakness in the growth of the same impact for the entire financial year," the report said.

The Indian IT sector is expected to close the current fiscal year ending March 2020 with 7.7% topline growth, Nasscom had said at its annual conference. 

The sector was already facing a slowdown in the IT spending in the financial sector and retail sector.