Cognizant warns of a cold, IT stocks sneeze on bourses
Sharp reaction to US software major tempering its revenue guidance.
A day after the shares of Nasdaq listed Cognizant Technology Solutions fell by 12.6 per cent after the company tempered its revenue guidance, the Indian IT stocks witnessed a sharp correction, pulling the Sensex down by 0.3 per cent to close in the red on Thursday.
The impact of Cognizant’s subdued guidance on the broader Indian IT sector is being seen by analysts as a sign of the US-headquartered software firm having clearly moved out of the shadows of its bigger competitors to emerge as a sectoral bellwether on the
Shares of TCS, Infosys and HCL technologies fell by up to 2.3 per cent during the day before closing the day with a fall ranging between 1.6 and 1.7 per cent. Shares of Wipro and Tech Mahindra, however, saw their share prices rise by 0.3 per cent and 0.4 per cent.
Even shares of Cognizant witnessed a recovery on Thursday as the shares were trading up by 2.7 per cent in the opening hours at Nasdaq.
Cognizant, on Thursday had reported a 16.5 per cent rise in its revenue and a 24 per cent jump in net profit at $371.9 million for the quarter ended June 30, but struck a cautious note as it lowered the full year revenue guidance at 14 per cent, its slowest full-year sales growth forecast in its 20-year history.
Infosys was the worst performer among the 30 blue-chips that make up the BSE index, Sensex, followed by TCS as the markets reacted to Congnizant’s guidance. Led by the fall in key IT scrips, the BSE IT index lost 1.27 per cent and the benchmark Sensex at the BSE fell by 0.3 per cent to close the day at 25,589.
While US and European markets provide more than 85 per cent revenues for Indian IT services firms and Cognizant has a big presence in India, a cautious note on its revenue guidance weakened the market sentiment around the sector
Experts feel that the guidance given by Cognizant does not paint a bad picture for the Indian IT majors. “Except for TCS which has maintained and projected strong growth numbers, other Indian players have not been showing good growth and the market has valued them accordingly. The Cognizant guidance will not have much impact on the valuations of Indian companies,” said Pankaj Pandey, head of research at ICICIDirect.
There are others who feel that Congnizant guidance has disappointed the markets. “The company scaled down its annual revenue growth estimate and that disappointed the investors and they booked profits in the front line IT companies in the Nifty,” said Alex Mathews, Head Research, Geojit BNP Paribas Financial Services.
Cognizant gave a few reasons for its weak guidance. “Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14 per cent over the prior year,” Cognizant CEO Francisco D’Souza had said on Wednesday.
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