TCS: US financial clients holding back on discretionary spending

Rs 31,527 crore wiped out from the IT major’s market valuation on Thursday

By: ENS Economic Bureau | Mumbai | Published: September 9, 2016 1:09:53 am
Photo for representational purpose TCS has warned that its financial sector clients in the US are holding back on discretionary spending, sending its shares tumbling as much as 5.14 per cent on the stock exchanges. (Photo for representational purpose)

India’s leading software services exporter, Tata Consultancy Services, has issued a revenue warning for the second quarter with a slowdown in both the financial services segment and customer spends (discretionary), resulting in a loss of momentum on a quarter-on-quarter basis.

TCS has warned that its financial sector clients in the US are holding back on discretionary spending, sending its shares tumbling as much as 5.14 per cent on the stock exchanges. It said its internal data as of end-August indicated that banking and financial services clients were being cautious and have in some cases been holding back on discretionary spending. This has led to a “sequential loss of momentum,” TCS said in a securities filing.

The TCS note sent its shares plunging as much as 6.5 per cent during the day on the BSE, wiping out Rs 31,527 crore from its market valuation. The stock later recovered marginally to end lower by 5.14 per cent at Rs 2,321.15. Other IT counters also fell. Infosys fell 1.62 per cent lower, Wipro (1.77 per cent), HCL Tech (1.70 per cent) and Tech Mahindra (2.61 per cent).

The US is the biggest market for India’s $150-billion software outsourcing sector, followed by Europe. Leading tech companies like Infosys  and Wipro which disappointed the  market with muted first quarter numbers, had said they were facing unanticipated headwinds and slower project ramp-ups  in large deals. However, industry body Nasscom has so far maintained that there is no immediate reason to revise forecast of 10-12 per cent revenue growth in IT exports for FY17.

Bengaluru-based Mindtree had warned that its revenues in the second quarter are expected to be lower than the first quarter, a trend that market watchers feel is indicative of a “difficult” FY2016-17 for the Indian IT sector.

Mindtree had attributed the warning to cross-currency movements, project cancellations and slower ramp-ups in a few large clients across different verticals.

“TCS has issued a warning declaring loss of momentum in Q2 of FY17 led by reduced customer discretionary spends,  specially in the BFSI segment. The slowdown in BFSI will hit revenues as the segment’s  revenue share stands at a high of 40 per cent. Further, the management indicated that customer outlook is cautious with some holding back discretionary spends,” Religare Institutional Research said in a report.

“Additionally, since the second half is seasonally weaker, we expect growth for FY17 to be in single digits.”

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