Everything happening in the IT sector (01/07/'24)

Personally curated list of news happening in the IT sector

Dear Readers,

Below you can find everything that transpired in the IT world in the recent days. A very good day for the NIFTY IT Index with a gain of 1.8% on the expectation that the Federal Reserve would be cutting the interest rates in September. This was on the backbone of the Personal Consumption Expenditure (PCE) data released on Friday which showed that the inflation in May slowed down to its lowest level in more than 3 years!

Persistent was the stock to watch, gaining about 6% in a single day!

The NIFTY is yet to hit its All Time High (ATH) of 38,893.38. The index briefly touched 38,494.21, but quickly detoriated from there.

Now, coming to the latest happenings in the IT sector:

• Indian IT companies struggling with GenAI Projects: Indian IT companies are facing significant delays in transitioning generative AI (GenAI) proofs of concept into production due to the high costs associated with computing power and evolving pricing models of cloud service providers. The adoption of GenAI is further hindered by a lack of robust data foundations within organizations, which complicates the deployment and effectiveness of these technologies. While firms like TCS and Infosys are investing heavily in GenAI, the scalability of their projects remains limited. Despite these challenges, experts anticipate that costs will decrease and adoption will increase as the technology matures and companies become more familiar with its applications. Source

• Anand Mahindra bullish on AI capabilities: Tech Mahindra's Chairman Anand Mahindra emphasized the transformative impact of artificial intelligence (AI) on IT services, detailing a strategic three-year plan to revitalize the company amidst the AI boom. Despite recent struggles with business slowdowns and shrinking margins, Mahindra is confident in the company's ability to "leap into a new orbit" under its new leadership. The strategy focuses on integrating AI to enhance core business functions and foster technological advancements, with a commitment to upskilling and operational optimization. CEO Mohit Joshi outlined a phased approach to achieve profitable growth by FY27, highlighting a focus on key accounts, cost optimization, and integrating portfolio companies. Mahindra also acknowledged the significant contributions of outgoing CEO CP Gurnani, whose leadership transformed the company into a multi-vertical, digitally led IT giant. Source

• Telecom Mega-Deals Signal Vendor Consolidation Rather Than Sector Recovery: Despite a recent surge in mega-deals exceeding $500 million from telecom giants to leading Indian IT firms like TCS, Infosys, HCL Technologies, and Wipro, experts caution against viewing this as a sign of sector recovery. These substantial contracts, such as TCS’s $1 billion deal with BSNL and Infosys’s $2.5 billion contract with Liberty Global, primarily stem from vendor consolidation and cost-cutting rather than an uptick in market growth. Telecom companies are investing heavily in digital transformation and 5G infrastructure, but ongoing economic pressures and lower-than-expected demand for 5G services continue to hinder short-term recovery. Tech Mahindra, historically a telecom leader, has not secured these mega-deals, focusing instead on internal restructuring under new leadership and maintaining its strategic foothold in the sector. Industry analysts predict that while large deals will persist, a broader recovery in telecom IT spending is unlikely before FY25 as the sector navigates restructuring and market pressures. Source

• Fidelity Investments Sells Rs 1,788 Crore Stake in HCL Technologies:

  Fidelity Investments offloaded shares worth Rs 1,788 crore in HCL Technologies through open market transactions on the National Stock Exchange. The US-based investment firm sold 1,24,14,228 shares at an average price of Rs 1,440.50 each, representing a 0.46% stake in the IT company. Prominent buyers included ICICI Prudential Mutual Fund, Kotak Mahindra MF, SBI MF, and global financial giants like Morgan Stanley and Goldman Sachs. Despite the large transaction, HCL Technologies' stock rose 0.42% to Rs 1,461 per share. Separately, Haridas Thakarshi Kanani, a promoter of Neogen Chemicals, sold 5.6% of his stake for Rs 241 crore, reducing the promoter group's shareholding to 51.23%. Neogen Chemicals' stock fell by 4.76%, closing at Rs 1,592.85 per share. Source

That’s it folks for today. Hope you all got some insights into the latest chirps in the IT sector. If you’re new here, and enjoyed reading it, please consider subscribing to the substack. I do company analysis, earnings analysis and very soon will be publishing a primer on IT sector.