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India’s top technology stocks have been under pressure, having lost over 1.44 trillion in market capitalization over the last eight sessions, after sector bellwethers Infosys Ltd and Tata Consultancy Services Ltd (TCS) announced their March quarter earnings.

Infosys, TCS, HCL Tech and Tech Mahindra corrected 6-8% since 9 April. Infosys lost over 38,000 crore in market value, while TCS erased 75,000 crore. HCL Tech lost 22,700 crore, and Tech Mahindra is down by 8,173 crore.

The stocks have underperformed the benchmark indices Sensex and Nifty both of which were down 3% each in the last eight sessions, while the BSE IT index fell 4.8% in the same period.

The correction in technology stocks could be a result of the lack of positive surprises in the earnings announced by IT services majors like TCS and Infosys, analysts said, adding that the earnings cycle has peaked for now and cuts are likely to consensus earnings, which could prompt a negative reaction.

Infosys reported a muted set of March quarter numbers with revenue growing 2% in constant currency, lower than analyst expectation of 4.1%. FY22 revenue growth of 12-14% and margin growth of 22-24% guidance was lower than analyst expectations of 13-15% and 23-24%, respectively. To be sure, Wipro reported better than expected earnings and its market cap increased by nearly 30,000 crore during the period as the stock rose over 12%.

Voluntary attrition for Infosys spiked to 15.2% compared with 10% a quarter ago, which analysts expect, could be an area of concern for the company. TCS has also indicated a step up in attrition.

Infosys announced another round of wage hikes in July 2021 after a first round earlier this year. This, along with return of travel costs, may keep margins under pressure in the coming quarters.

“In the last couple of weeks, IT stocks have corrected in mid-single digit largely due to soft Infosys 4Q print and possibility of margin drag ahead because of rising attrition levels and increasing talent cost across IT names. Additionally, unwinding of covid-related cost savings, i.e., travel and other costs may cap the margin upside for FY22," said Suyog Kulkarni, senior research analyst, Reliance Securities.

Analysts said TCS results were broadly in line with street expectations on growth and margins, but failed to excite the markets. “Record order booking and strong hiring keep the promise alive on FY22 estimates rebound, but fourth quarter result print will limit case for revenue/EPS upgrades for TCS. That itself may be a case for slight disappointment given the general expectations going into the results," JM Financial said.

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