Where is the market headed?
The IT sector faced a significant sell-off in the stock market, triggered by poor future guidance from Cognizant, one of the largest IT services companies globally. This negative outlook caused major Indian companies like TCS and Infosys to follow suit. Big IT stocks dropped between 4% and 7% in a single day, leaving them down by 40% to 50% from their recent peak levels.
While it is easy to say these stocks have underperformed recently, a look at their historical charts since their initial listing tells a different story. Infosys has delivered a remarkable 29% compound annual growth rate, while TCS has achieved more than a 16% compound annual growth rate over a 22-year period.
The core issue lies in timing; there is a right time to buy and a right time to exit a stock. Buying at elevated points and doing nothing while the market declines leads to a poor investing experience. For instance, in just a four-year period, Infosys stock skyrocketed 100 times, but then it did nothing for the next decade. This was followed by a mild, gradual recovery, and then another five years of stagnation.
This highlights the absolute necessity of having a proper mechanism to decide when to buy stocks, which specific stocks to choose, and how to exit them when the trade is not working out.
Market Overview
Looking at the broader market performance for the week ending Friday, June 19, the Nifty index closed down by 0.64%, recovering from an earlier drop of more than 1% during the day. Even with the heavy overhang of tumbling IT stocks, the rest of the market held up reasonably well.
Broader Market Indices
Mid-cap and small-cap stocks managed to buck the negative trend, gaining 0.35% and 0.57% respectively. On the other hand, the Nifty Next 50 and the Nifty Bank index remained in a sell position.
GOLD
In the commodities market, gold prices slid by 1.12%, bringing the rate to 14,515 per gram. The hawkish stance maintained at the recent Federal Reserve meeting has rattled the short-term gold market, meaning the precious metal will need to find a new base before it can build back upward momentum.
Crude Oil
Meanwhile, crude oil prices stabilized around 79 dollars per barrel, after previously dipping as low as 76 dollars. This comes amid reports that Israel has renewed attacks, disturbing the signed memorandum of understanding that provided a 60-day window to negotiate further terms, a situation that Iran appears unhappy with.
Heat Maps
The Nifty heat map showed sharp losses for major heavyweights, as Infosys, TCS, HCL Tech, Wipro, and even Reliance and HDFC Bank were not spared. Reliance declined despite announcing an upcoming initial public offering for its Jio platform and filing the draft red herring prospectus. Mahindra and Mahindra, Maruti, and State Bank of India also ended the day lower. Conversely, Bharti Airtel perked up on the back of this news.
The Nifty Next heat map was predominantly red as well. Oil marketing companies, LTIMindtree, United Spirits, and DLF all gave up the ground they had gained over the previous couple of days. Meanwhile, Muthoot Finance, Canara Bank, Bank of Baroda, and IndusInd Bank remained reasonably flat.
Movers Of The Day
Among the top movers of the day was NIACL, the New India Assurance Company Limited. The company, alongside LIC and IFCI, saw its stock rise because it holds shares in the National Stock Exchange, which has just filed its initial public offering draft red herring prospectus. These companies are looking to unlock significant value from their existing National Stock Exchange holdings.
Sectoral Overview
In contrast, Infosys emerged as the biggest loser, plunging 6.75%. With Accenture and Cognizant leading the global downturn, the Indian IT sector fell 3.65% in a single day. This brings the sector’s trailing one-month loss to 13.5% and its one-year decline to a staggering 27%. This steep drop illustrates how much capital could be saved if investors had a mechanism to rotate out of losing sectors early.
In comparison, other sectors have performed exceptionally well this year, with PSU banks up 30% and metals gaining almost 40%. On the day, tourism was the top gainer up 0.95%, followed by pharma up 0.73% and defense up 0.68%, while oil and gas and real estate both shed about 1% each.
Sector of the Day
Nifty IT Index
The primary drivers dragging the IT index down were Infosys, LTIMindtree, TCS, Emphasis, and Tech Mahindra.
U.S. Market Updates
Shifting focus to the international markets, the previous session in the United States saw strong gains for the NASDAQ, which jumped 2.48% in a single day.
Over a one-year horizon, the NASDAQ has delivered a 40% return, while the Russell index is up 41% after climbing 2.12% last evening. The S&P 500 rose 1%, while the Dow Jones Industrial Average remained completely flat.
Despite the broader US market slump, companies like Arm Holdings, Western Digital, Applied Materials, Broadcom, and Marvell Technology managed to run up. Meanwhile, AppLovin, Charter Communications, Old Dominion Freight Line, Meta Platforms, and Adobe all closed down in the Nasdaq 100 session. Adobe remains a very big concern for investors, having fallen consistently from its peak of 700 dollars to hover somewhere near 200 dollars.
This steep decline underscores the severe concentration risks faced by individuals who lack a clear exit plan for their equity holdings. Meta also experienced a significant single-day drop of 5.4%. Heavyweight tech giants including Microsoft, Google, and Amazon came under intense selling pressure as well, collectively wiping out several trillion dollars of market capitalization in just one session.
Within the NASDAQ 100, the top gainers included ARM Holdings, Western Digital, Applied Materials, Broadcom, and Marvell. The top losers were AppLovin, Charter Communications, Old Dominion, Meta Platforms, and Adobe. Adobe has experienced a remarkable decline, moving steadily south from 700 dollars to less than 200 dollars.
The broader NASDAQ 100 heat map reveals that top-tier stocks like Google, Microsoft, Meta, Amazon, Walmart, Nvidia, and Apple are all losing ground. This creates an uncomfortable situation for the NASDAQ index, though it suggests investors may be freeing up capital to prepare for the upcoming SpaceX initial public offering and its expected inclusion into major indices very soon.
Tweet Of The Day
The day also brought a critical lesson regarding high-net-worth investors and market literacy. A prominent investor shared that he had purchased 10 lakh shares of Jaiprakash Associates at around 10 rupees per share. Now, through the ongoing corporate insolvency restructuring process, the equity value of Jaiprakash Associates is being marked down to zero.
This points to a very common theme where even substantial investors do not fully understand National Company Law Tribunal and bankruptcy proceedings. In these situations, equity holders have the absolute last charge on the remaining corporate assets.
When a company like Jaiprakash Associates goes into liquidation, the first priority goes to banks and secured creditors. Once they are fully satisfied, the remaining funds go to operational creditors, unsecured creditors, employees, vendors, and outstanding government dues. Only if the winning asset bid is large enough to clear all of those liabilities do equity shareholders get a chance to claim any salvage value. There were 6 lakh shareholders in Jaiprakash Associates who held onto their positions knowing fully well that the company was headed toward liquidation.
This reflects a significant gap in knowledge and information within the wider investing community, and it highlights the immense risk of buying into bankrupt companies.
