February 28, 2024

The market is eagerly awaiting AI’s impact in terms of numbers, whether positive or negative, in 2024.

The tech sector began 2024 on a sombre note. On the first day of trading, Apple experienced a significant setback, losing $100 billion in market capitalization and triggering a 1.6 percent drop in the Nasdaq. The 3.6 percent loss in Apple’s stock value was attributed to Barclays downgrading the stock to “underweight.” The downgrade cited disappointing iPhone 15 sales and a bleak outlook for Apple’s hardware business.
Beyond Apple, Intel also played a role in the index’s decline, falling 4.9 percent along with other chip makers. This downturn followed an announcement by Dutch semiconductor manufacturing equipment maker ASML, stating it would restrict shipments of certain technology to China at the Dutch government’s request.

The repercussions extended to the Indian market, where the IT sector experienced a more than 2 percent fall on Wednesday. Despite a recent rally in IT stocks in India over the past three months, the Nasdaq drop and the upcoming earnings season are expected to limit upward movements in the sector.

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Broking firms are exercising caution due to the recent outperformance making IT stocks more expensive. Bloomberg data reveals that the Nifty IT index trades at 26.4 times its one-year forward earnings, a 31 percent premium to the benchmark Nifty and significantly above the five-year mean.

Expectations for the IT sector remain subdued, with most analysts anticipating low single-digit revenue growth in the December quarter. This is attributed to reduced discretionary spending by clients and higher-than-expected furloughs during the quarter.

The hiring outlook for IT companies in 2024 is also conservative, withreports suggesting a reduction in freshers hiring from 2.3 lakh in the previous year to 1.55 lakh in FY2023-24. Notably, Infosys has decided not to visit college campuses for hiring freshers. Major companies like Google, Amazon, Meta, and Apple have also slowed their hiring in India, with job openings decreasing by 90 percent since 2022.

While the outlook for IT stocks’ performance is not optimistic, attention is focused on guidance and management commentary. A potential surprise in the sector could be in the Artificial Intelligence (AI) space. In 2023, AI gained significant attention with platforms like Chat GPT. The market is eagerly awaiting AI’s impact in terms of numbers, whether positive or negative, in 2024.

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Technical picks: Biocon, Dr Reddy’s Laboratories, ACC, Neuland Lab, and Zinc (These are published every trading day before markets open and can be read on the app).

Shishir AsthanaMoneycontrol Pro