Cognizant guidance fails to spook IT stocks; here's why

NEW DELHI: Top five IT stocks traded sideways in earning trade on Monday, shrugging off a cut in full-year revenue guidance by the US-based peer Cognizant Technology Solutions.

Cognizant, which reported its June quarter numbers over the weekend, forecast revenues in the range of $13.47 billion and $13.60 billion against $13.65 billion and $14 billion, implying only about 8.5-9.5 per cent growth. The management cited sluggish macros due to Brexit, client-specific issues and cross-currency impact behind its downward revision of revenue guidance. But experts said it was more of a matter of prudence.

At 9.25 am, Wipro shares traded 0.73 per cent higher at Rs 548.85. HCL Tech and Tech Mahindra rose 0.28 per cent and 0.25 per cent, respectively. Infosys fell 0.25 per cent to Rs 1,064.75. TCS fell 0.37 per cent to Rs 2,639.

“The company management highlighted that the banking sector in Europe was facing a slowdown due to macroeconomic blues, leading to lower discretionary spends. TCS, which has relatively higher exposure to the Europe's BFSI sector, may have a negative read through. The management has highlighted that discussions with clients allude to recalibrating spends in favour of digital technologies,” said Edelweiss Securities.

“This creates enormous potential for services companies due to the fragmented landscape and will benefit players with those capabilities. We believe the cut in guidance is a combination of prudence and sluggish macros. However, lower discretionary spends may impact revenue growth of Indian IT companies as well,” the brokerage said.

The brokerage is positive on Infosys, Tech Mahindra and HCL Technologies in that pecking order.