 "Cognizant guidance is casting a shadow over Indian IT stocks")
Shares of IT services providers fell after Cognizant Technology Solutions Corp forecast its slowest full-year sales growth in its 20-year history.
Tata Consultancy Services was down 0.7 percent, Infosys 2.1 percent, Wipro 0.8 percent, Tech Mahindra 0.2 percent and HCL Technologies 1 percent.
On Wednesday, Cognizant Technology reported a profit of to $371.9 million, above a Reuters estimate, helped by higher IT spending in North America and Europe and growth in its healthcare business division. The revenue growth for quarter ended June 30 stood at 3.9 percent on quarter as against a guidance of 3.2-4.4 percent.
But the company cut its revenue growth guidance to 14 percent from 16.5 percent citing client-specific issues and longer-than-anticipated sales cycles.
According to Religare Institutional Research, the company’s growth guidance of 1.3-2.5 percent on quarter for the next quarter implies only 0.5 percent revenue growth for Q4.
Shares of the company listed on the Nasdaq had fell reacting to the disappointing guidance.
“While management attributed the guidance cut to client-specific issues, we note that this is a negative read-through for the Indian IT space too,” Religare said in a research note.
The brokerage has noted that the management commentary suggested that client issues should be over by December, and that overall demand for IT services remains strong. Also, pricing is stable and some of the deals require upfront investments.
“Although overall demand commentary was positive, a longer sales cycle and weakness in outsourcing could impact growth for Indian IT companies given the fairly high client overlap,” the brokerage said.
With inputs from Reuters