The Euro zone debt crisis and global macro uncertainties seem to have weighed down on offshore IT services companies' performance on the US bourses this year. American Depository Receipts of these companies took a beating, with Infosys and Wipro sliding as much as 32 per cent and 35 per cent respectively, on Nasdaq and NYSE during the course of the year.
While most of these securities slumped during the first half of the year and entered consolidation phase in July-August, they recovered partially since August.
This was mainly on account of a relatively stable US, and a better showing in the September quarter by companies.
Most analysts tracking the sector believe that the Euro zone overhang is reflecting on the full-year stock performance of the offshore tech pack on the US bourses. On the Nasdaq, Cognizant shed nine per cent between January 3, 2011 and December 2, 2011 (year to date). Nasdaq Composite Index, meanwhile, ended about 2.4 per cent lower during the same period.
Nasdaq-listed BPO vendor Exl Service Holdings bucked the trend, gaining almost 13 per cent. While NYSE-listed BPO companies Genpact and WNS lost nearly one per cent and two per cent respectively, the NYSE-benchmark ended about seven per cent lower in the same period.
“Technology companies derive nearly one-third of their revenue from the financial sector. The fear may be that if the Euro zone crisis worsens and impacts the earnings of banks, that could rub off on IT spends in the banking sector,” said Mr Shashi Bhushan, Senior Research Analyst at Prabhudas Lilladher.
Industry observers believe that investor fears may also have been stroked by the deep co-relation between the export-oriented tech industry and the global economy. “Any macro weakness can impact the performance of these companies,” added Mr Bhushan.
IT spending
While research firm Gartner recently projected a 3.9 per cent rise in global enterprise IT spending at about $2.7 trillion in 2012, from 2011 spending of $2.6 trillion, analysts are waiting to see how the IT budgets by client organisations finally pan out for the coming year.
“Unlike last year, when IT budgets were finalised around end-December or early January, this time, I feel they would take some more time to crystallise, given the global situation. I expect the IT budgets to be finalised only around mid- or late-January,” said Mr Sanjeev Hota, Associate Vice-President - Institutional Equities at Sharekhan. However, Sharekhan is “cautiously optimistic” on the sector, he added.
Mr Bhushan of Prabhudas Lilladher estimates the dollar growth of IT companies to be 17-20 per cent for 2012-2013. As of now, there is no reason to change those estimates, he emphasised.
“In a tough market characterised by a slower growing pie, we believe that it is all about disproportionate market share gains and only relentless, speedy execution, with the ability to invest, can ensure that (while strategy is only a hygiene factor). From Cognizant's continuing robust results, the big message is that ‘proactiveness' and ‘execution' can win the day for companies,” said a research report from JP Morgan, summing up the condition IT industry is currently undergoing.