Even though financial performance in December 2015 quarter and guidance of Indian information technology companies did not spring any major negative surprise, muted guidance by US-based Cognizant Technology Solutions for the calendar year 2016 has forced investors to relook at the Indian IT space — one of the best defensive play amid current volatile and stressful market conditions.
Nifty IT index was the biggest loser on Tuesday and closed down 3.5 per cent compared to Nifty’s 1.2 per cent fall. Frontline IT companies — Infosys, TCS, HCL Technologies and Tech Mahindra — closed down 3.5-5 per cent and were also among the top ten losers on the Nifty.
While Tech Mahindra hit its 52-week low levels of ₹446, TCS and HCL Tech are trading close (about 2 per cent) to their 52-week low level.
“A deteriorating macroeconomic environment is leading to delays in discretionary projects in the largest financial services vertical. We expect CY16/FY17 to be 1-2 per cent lower-growth year for the Indian IT industry,” said Kawaljeet Saluja and Jaykumar Doshi, analysts at Kotak Indstitutional Equities.
Girish Pai, analyst at Nirmal Bang, said that slowdown in discretionary spending by banks is a new development and will have a bearing on Indian IT services industry. According to analysts, BFSI forms around 40-45 per cent of revenues for the frontline IT companies like Infosys, TCS, Tech Mahindra and HCL Technologies.
Infosys to outgrow Cognizant Among the frontline companies, Infosys is the best pick due to combination of market share gains and portfolio that is aligned to growth areas. “March 2016 will be the third consecutive quarter when Infosys outgrows Cognizant,” pointed out Ashish Chopra and Sagar Lele, analysts at Motilal Oswal.
Meanwhile, TCS allayed market concerns about the state of demand in BFSI industry vertical and clarified that TCS’ business in the BFS vertical continues to grow well, ahead of the overall company growth.