These two IT stocks tumbled intraday; is rally over for mid-sized IT companies?

For the past few months, a strong rally is being witnessed in the IT stocks. S&P BSE IT index surged by around 40 per cent on a YTD basis and has almost doubled since March 2020 lows.

While looking for cues to realise the effect of COVID-led disruptions on mid-sized IT companies, investors pinned on hopes for better Q2FY21 results on cues after the top-tier IT companies reported sharp positive growth in revenues.

On Friday, the shares of Mindtree fell by more than 10 per cent after underwhelming Q2FY21 results wherein, the company posted net sales of Rs 1,926 crore for Q2FY21, which is a flat growth YoY compared to the net sales of Rs 1,914.30 crore in Q2FY20. Net profit for Q2FY21 rose by 87.93 per cent YoY to Rs 253.70 crore. Lower revenues were reported as a result of a dip in the company’s revenue from its top client Microsoft, while the deal pipeline also seemed to slow down a bit.

Shares of Mindtree gained by more than 120 per cent since the beginning of FY21 but declined by nearly 15 per cent in the past few days.

HCL Technologies posted a 6.09 per cent YoY growth in the net sales to be Rs 18,594 crore for Q2FY21 while net profit gained for Q2FY21, increased by 16.05 per cent YoY to Rs 3,146 crore. Subsequently, the shares of the company fell by around 5 per cent on Friday. The company’s scrip has declined by around 8 per cent in the last few days while it has more than doubled from its 52-week low of Rs 375.50 per share touched in March 2020.

With increasing deals and product demand, Indian IT companies have been on an acquisition spree amidst the pandemic, strategically buying companies in worthwhile areas such as cloud-platform implementation and AI-based products & services. Though this is a beneficial growth factor yet lower-than-expected Q2FY21 results raise concerns for investors of the mid-sized IT companies.

Shares of Mindtree were trading at Rs 1,331.60 per share, down by 6.72 per cent or Rs 95.95 per share. The intraday low is of Rs 1,264.25 on BSE.

While, the stock of HCL Technologies was seen trading at Rs 827.50 per share, down by 3.72 per cent or Rs 31.95 per share.