IT stocks fall as Cognizant's 2014 outlook dampens sentiments
IT stocks underperformed the broader markets on Thursday tracking Cognizant Technology Solutions' weak revenue guidance for 2014. Cognizant, which reported Q4 results on Wednesday, said it expects annual revenues to grow at 16.5 per cent year-on-year as compared to its 2013 growth rate of 20.4 per cent.
Analysts were expecting Cognizant to grow revenue by 17-20 per cent in 2014, Reuters reported. Cognizant, which fell as much as 7 per cent in morning trading on Wednesday, ended 4.3 per cent lower to $92.85.
William Blair & Co analyst Rahul Bhangare said some investors might be "a little bit disappointed and scared" that the company's growth was slowing.
"The Street was getting a bit too aggressive. If you look at the guidance that the company has historically given at this point in the year, it is typically conservative," Mr Bhangare told Reuters.
Cognizant CEO Francisco D'Souza, in reply to a question whether the guidance for 2014 implied some deceleration or conservatism said, "Our initial guidance for 2014... it's actually a little bit stronger than our initial 2013 guidance. We're feeling a little bit better than the same time in 2013." (Read the full transcript here)
Cognizant, which has most of its employees in India, has consistently outperformed peers in revenue growth from the US and in large segments such as BFSI (banking, financial services and insurance), manufacturing, retail and has the largest presence in the healthcare vertical.
Mr Bhangare said some people may have been very disappointed with Q4 results, they were largely in line and this is not necessarily typical of Cognizant just to be in line.
As of 09.35 a.m., the BSE IT index traded 0.73 per cent lower as compared to 0.4 per cent gains in the broader Sensex. On the Nifty, HCL Tech, TCS, Infosys and Wipro were among the top losers. (Track IT stocks)
India-based outsourcers had a great run in 2013 and some of those gains were predicated on hopes of higher demand from the US, which accounts for around 60 per cent of IT sales of tier-1 firms. Cognizant's forecast might dampen some of that optimism. (Read full story here)
(With inputs from Reuters)
