Why Indian IT Sector is Under Pressure & What factor is leading to the rise in Stock Price of Reliance Industries

2 min read

Reliance Industries stock is currently on a rise. The stock price is hovering around Rs. 2,750 and has gone up by more than 12% in the last month. While on the other hand, the Indian Information Technology (IT) sector is currently witnessing a correction on account of several factors. What are the reasons behind the surge in Reliance Industries stock price and downfall in the India IT Sector stock price, let’s discuss this all in this article as we move ahead.

Why Reliance Industries Stock Price is Going Up?

  • Generally, the Telecom & Retail business of Reliance Industries i.e., Jio and Reliance Retail respectively are considered to be two growth engines of Reliance Industries Limited
  • These two businesses have remained in focus but for Q4FY22 the Oil to Chemical (O2C) business will be the major highlight on account of the increased crude oil price scenario. The increased crude oil prices might positively impact the margins of the O2C business segment.
  • It is expected that the Year-on-Year growth of the O2C business will be around more than 50%-60%. This YoY growth can be seen in the topline and bottom line as well.
  • Talking about sequential growth, then the growth in the O2C business is expected to be around 30%.

Indian IT Sector:

  • 70% of the revenue of Indian IT Companies is derived from North America. Further, this market of North America represents the S&P 500 Index of the United State of America.
  • The revenue growth expected in this calendar year i.e., CY22 in S&P 500 market is around 8% and around 5% in CY23. (the USA follows Calendar Year as its Financial Year).
  • The Indian IT Sector highly depends upon the North American market. When the revenue growth is higher in this market then expenditure on IT Sector is more.
  • In CY21, the companies of the S&P 500 index recorded revenue growth of 17%. And due to such double-digit revenue growth, Indian IT giants grabbed big deals in the same period.
  • Hence, the pressure of revenue growth in North America might surely affect the Indian IT sector.

What Should Investors Do?

For IT Sector, The high valuations of the Indian IT sector were backed by the expectations of the growth which was and is visible in this sector. Major IT Stocks like TCS, Infosys, etc. cannot justify such high valuations where these stocks are currently trading at much higher levels as compared to their median PE levels. Also, currently, the high attrition rate is another big problem for the Indian IT Companies which is affecting their margins.

Further, an investor should have a close look at the performance of the O2C business of Reliance Industries as and when the Q4FY22 results are declared.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

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