Infosys Slumps as Cognizant Cuts 2014 Guidance

Shares in outsourcers such as Infosys and TCS fell sharply on Thursday after US-based Cognizant Technology Solutions cut its full year sales outlook from 16.5 per cent to "at least 14 percent". A majority of Cognizant's workforce is based in India.

Cognizant competes with Indian companies for outsourcing projects and the scaling back of guidance has renewed concerns of demand headwinds in the key markets of US and Europe, analysts say.

Infosys closed 2.12 per cent lower at Rs 3,500. TCS, which reported better-than-expected profit in the April to June quarter, slipped 1.5 per cent to end at Rs 2,469.80, while HCL Tech ended 1.9 per cent lower at Rs 1,518.

The IT sub-index on the BSE slumped 1.3 per cent as compared to a 0.3 per cent drop in the broader Sensex and Nifty.

Cognizant shares fell as much as 16.8 per cent to $41.51 in early trading on the Nasdaq after the outsourcer forecast its slowest full-year sales growth in its 20-year history, citing delays in booking revenue from some large deals. (Read the full story here)

Longer-than-anticipated sales cycles for some large deals had led the company to adopt a more conservative stance for the rest of the year, Chief Executive Francisco D'Souza wrote in a statement.

J.P.Morgan analyst Tien-tsin Huang downgraded the company's stock to "neutral" from "overweight", citing the disappointing cut in full-year revenue growth outlook in what is typically Cognizant's seasonally strongest period of visibility and growth.

Huang also cut his price target to $45 from $55.

"Clients aren't spending quite as much as we expected on some projects," Cognizant President Gordon Coburn told Reuters.

Trading strategy:

Independent analyst Sanjeev Bhasin put out a sell call on both Infosys (target 3,200) and Wipro (target 532) after Cognizant's disappointing result. Market analyst Sarvendra Srivastava said the risk reward for IT stocks has turned negative.

However, TS Harihar, chief executive at HRBV Client Solutions, remained positive on IT stocks. The Cognizant guidance is a sentiment dampener, but investors should buy IT stocks at correction, he said.


(With inputs from Reuters)