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Wednesday, February 5, 2014

TCS, HCL Tech, Infosys slip on Cognizant's muted Revenue Outlook

Shares of Indian IT cos slipped nearly 1% after the global rival Cognizant Technology Solutions forecast 2014 revenue below analysts' expectations.Shares of Indian IT companies such as Tata Consultancy ServicesBSE -1.62 %, Infosys, HCL Technologies, Wipro, Tech MahindraBSE -0.31 % slipped nearly 1 per cent after the global rival Cognizant Technology Solutions forecast 2014 revenue below analysts' expectations.

Lower revenue guidance raised concerns about the sector's growth prospects and future demand environment for the domestic IT sector.

Cognizant said it expected revenue to grow at least 16.5 percent this year, the slowest growth since 2009 and lower than the 20.4 per cent growth in 2013. The company also declared a 2-for-1 stock split.  

Analysts were expecting Cognizant revenue to grow 17-20 per cent in 2014 due to higher demand from Europe and for healthcare services, said a Reuters report.

At 09:50 a.m.; BSE IT index was trading 0.8 per cent lower at 9,176 as compared to an over 50-point gain seen on the BSE Sensex at 20,315.

For Indian IT firms, the home market has been far more challenging than the US or Europe, Nasscom said earlier in the week.

IT executives often point to dysfunctional policies, lack of project management and delayed payments as reasons for conflict in IT contracts with the government, the country's largest spender on technology and related services. Nasscom wants to proactively try to change that, its new president R Chandrasekhar, a long-time bureaucrat, told ET in a recent interview.

The coming general elections will make implementing changes hard in the next six months, but Nasscom intends to work with the bureaucracy to suggest process-related changes during the election time and work on policy-related changes when the government has been formed, Chandrasekhar added.

However, most markets experts see the recent correction as a good entry point considering they have run up quite a bit in recent past. Long-term investors can look at accumulating frontline IT stocks.

"We think that companies like Infosys, HCL Tech where we have seen a sharp correction in the past few trading sessions provide a good entry point," said Hemang Jani, Senior Vice President, Sharekhan

"We think that overall global environment continues to be good as also the currency part. We have seen some weakness in the rupee. Though it has remained relatively stable, we think that these stocks will provide a good upside from current levels," he added.

According to analysts, IT stocks should be doing relatively better, but investors should not bet on further PE expansion.

"PE expansion may not be all that much because the expectation is that there may not be a lot of money chasing Indian stocks. Also because of the fact that there might be a lull in investment and probably there could also be an outflow sometime in the near future if QE tapering continues very aggressively," says UR Bhat, MD, Dalton Capital Advisors, in an interview with ET Now.

"So, I don't think it would be worthwhile to bet on PE expansion; but then IT companies will still be better off in the Indian stock scene," he added.

Therefore, I do not see a huge outperformance in terms of the PE expansion, but IT would probably be doing reasonably alright compared to the rest of the market," concludes Bhat.
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