Testing time for technology stocks!

It’s going to be a testing time for investors as the market may undergo corrections. During correction most investors hide their holdings in the safe haven. A safe haven is a type of investment that is expected to retain or increase in  value during times of market turbulence. In India, pharma and IT sectors are generally considered as safe havens by fund managers and investors. 

 

Unfortunately, now we can’t consider IT as a safe haven as most of them are trading below its 200 DMA- indicating a further correction in the offing. Further, the Fed sees unemployment rising to 4.4% next year, sharply up from the current 3.6 %. Many economists and investment bankers see it as a precursor to a deep recession and we should see many technology companies use layoffs as a compelling strategy to protect their skin. 

 

We have already witnessed two horrendous back-to-back 5% losing weeks in the S&P 500. Interestingly, the S&P 500 has closed near its June lows and a bounce back from the current levels looks like a mirage in the desert. 

 

In the present condition the worst affected are technology companies like Infosys and TCS that  depend on foreign income to boost their financials. For some reasons the market has been too kind to the Indian IT sector and we are yet to see a good correction in these stocks. The next 3-4 quarters may be difficult for them and  investors may be better off to avoid these sectors for the time being. The second quarter results may help them to window dress their income statement but it will be too difficult to hide their wounds in the third quarter onwards. 

 

 

Things are better for some other sectors that solely depend on India growth stories and let’s discuss more about it in our future newsletter.