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Shares of nine companies across the BSE Sensex and the NSE Nifty50 hit their respective 52-week lows after the two indices sharply declined by around 2 per cent each on Thursday, just a day after the US Federal Reserve delivered a 75 bps interest rate hike.
Infosys, Wipro and Tech Mahindra from the information technology (IT) sector, UltraTech Cement and Grasim Industries from the cement pack, Tata Steel and Hindalco from metals, and Bajaj Finance and IndusInd Bank from financials touched their respective 52-week lows today.
The US Federal Reserve raised rates by 75 bps on Wednesday, which is its largest interest rate increase in more than a quarter of a century, to stem a surge in inflation.
Fed also significantly cut its outlook for 2022 economic growth to 1.7 per cent from 2.8 per cent in March.
“The risk of a recession in the US has increased and the next two quarters will be extremely crucial. Although, Fed expects inflation to move lower in 2023, the effect of the central bank’s actions on the broader economy remains uncertain. The market is expected to remain quite volatile as it tries to find the balance between economic growth and high inflation,” said Mohit Ralhan, Managing Partner at TIW Capital Group.
Meanwhile, global growth is expected to moderate from 6.1 per cent in 2021 to 3.6 per cent in 2022, driven by withdrawal of monetary accommodation in major economies, continued supply side shortages and economic damage from the war in Ukraine.
According to Infosys, the spending on technology products and services by its clients and prospective clients fluctuates depending on many factors, including the economic, geo-political, monetary and fiscal policies and regulatory environment in the markets in which they operate, it noted in its FY22 annual report.
An economic slowdown or other factors may affect the economic health of the US, the UK, the European Union (EU), Australia or those industries where IT revenues are concentrated, the company said.
The rise in input costs, especially fuel, pet coke and coal prices, has dampened EBITDA margins of cement companies during the second half of the fiscal year 2021-22. Further, the geopolitical tensions between Russia and Ukraine resulted in a sharp increase in pet coke and coal prices, thereby, denting overall profitability of the business.
The industry volumes are likely to have declined in mid-to-high single digits MoM (though up in mid-to-high teens YoY due to base effect) in the month of May on higher prices of other commodities, high temperatures, and regional issues like panchayat elections in Jharkhand, sand aggregators’ strike in Gujarat, etc.
Margin pressure is likely to persist in H1FY23E (April 2022 to September 2022) as variable cost/ton is likely to remain elevated due to an increase in input costs in the past few months and inability to pass on the cost increase. Any corrections in input prices will be the key thing to watch out for, according to a brokerage.
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