Tata Consultancy Services, India's biggest outsourcer, dropped as much as 3.2 per cent on Monday after its management sounded cautious about March quarter earnings. TCS said it continues to see weakness in insurance vertical, while identifying energy and telecom verticals as "problem areas".
TCS reported a 1.9 per cent sequential revenue growth in US dollar terms for the fourth quarter of 2013-14 which would put the January-March quarter growth at below current estimates, analysts said.
"Overall, Q4 is likely to be another soft quarter from TCS, and with expectations already high, we see downside risks to earnings," Religare said in a note.
The brokerage downgraded the stock to "hold" from "buy". The stock closed 1.8 per cent lower at Rs 2,646.80.
Meanwhile, mid cap IT outsourcer Mindtree fell nearly 6 per cent after it issued a profit warning, saying its March quarter organic growth (in US dollars) will be marginally negative. Mindtree cited delay in project starts at two retail/CPG clients and cross-currency impacts for the profit warning.
Mindtree's operating margins in the March quarter is likely to be impacted as well, the company's management said.
Mindtree shares closed 4.3 per cent lower at Rs 1,408.
What analysts say:
Prakash Diwan of Altamount Capital Management said the IT sector seemed like a safe haven, but some doubts have started creeping with these developments.
"Mindtree alert, TCS outlook are a dampener for a few days," he said.
Mr Diwan, however, remained bullish on Tech Mahindra and Infosys in the IT space.
Mehraboon Irani of Nirmal Bang Securities said Wipro remained his top pick in the IT space.
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