Shares of Tech Mahindra nosedived nearly 8% in intraday trade on Monday, registering its biggest single-day fall since May 2020, in sync with S&P BSE Information Technology (IT) index, amid strong volume trade. The surge in selling activities was also triggered by a downgrade in rating by foreign brokerage house Citi. The global brokerage has lowered the stock to “sell” from “neutral” and cut the target price to ₹955 from ₹1,100.

Weighed down by the rating downgrade, Tech Mahindra shares opened 4% lower at ₹1,046.80 against the previous closing price of ₹1,086.80 on the BSE. Extending opening losses, the IT stock declined as much as 7.8% to hit an intraday low of ₹1,002, while the market capitalisation dipped to ₹1 lakh crore. On the volume front, 2.5 lakh shares changed hands over the counter on the BSE against a two-week average volume of 0.65 lakh stocks.

The sell-off in Tech Mahindra shares was in line with the broader market as well as the BSE IT index. The BSE Sensex was down 1.2%, while the S&P BSE IT index fell 5.5%, with all the sectoral heavyweights reeling under selling pressure. The Tata Consultancy Services (TCS) shares were down 2%, while Infosys tumbled over 12% after its fourth-quarter results failed to impress Street. Tech Mahindra is expected to release its March quarter earnings report on April 27.

At the current price levels, Tech Mahindra shares are trading 6% higher than its 52-week low of ₹944.10 touched on June 16, 2022, while they are down 28% against its 52-week high of ₹1,393 hit on April 18, 2022. In the last one year, the IT heavyweight has fallen more than 23%, while it has given muted returns in a six months period. On the year-to-date (YTD) basis, the counter has risen 2%, while it shed 9% in a month and 6% in a week.

Citi has downgraded Tech Mahindra shares citing the company’s increased risks to growth in the communications vertical, which contributes nearly 40% of its total revenue. The brokerage in its report said that near-term challenges may be exacerbated by macroeconomic factors which may act as headwinds for the company.

The agency said that there are positives associated with leadership change, but that may take some time to play out for the company.

"In that context, valuations are at 16x 1-yr forward cons EPS – risk-reward looks unfavorable, in our view. We lowered our target multiple to 15x (17x earlier) to factor these risks – new TP of ₹955 (₹1100 earlier). Our FY24E/FY25E EPS are 7-14% below consensus,” Citi said in its report.

Meanwhile, IT major Infosys was top laggard on the Sensex pack, falling as much as 12.2% to ₹1,219 as investors reacted to its Q4 results. Infosys reported 7.8% year-on-year (YoY) rise in consolidated net profit at ₹6,128 crore in Q4FY23, compared with ₹5,686 crore in the same quarter last year. On the quarter-on-quarter (QoQ) basis, the profit de-grew by 7% from ₹6,586 crore in the December quarter of 2022. Consolidated revenue from operations jumped 16% to ₹37,441 crore in Q4FY23, as against ₹32,276 crore in the corresponding quarter last fiscal. Sequentially, the revenue dropped 2.3% from ₹38,318 crore in Q3FY23. Going forward, Infosys expects revenue growth in CC terms at 4-7% for FY24. The EBIT margin for the fiscal has been projected to grow at 20-22%.

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