Why are IT stocks falling when the market is climbing?

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Why are IT stocks falling when the market is climbing?
Indian stock indices are rapidly scaling news peaks with the Sensex now at a 20-month high. IT stocks, however, are dropping, weighed down by a string of bad guidance and skepticism over performance of companies in the sector.

In the last few trading sessions shares of TCS, Infosys, Wipro and HCL have been losing ground. It all began with a Reuters report which stated that Cognizant in a filing to the SEC said its top executives will receive 100 percent of their performance-linked shares if the company achieves revenue of $8.5 billion next year, a 16 percent rise over its projected 2012 revenue.

"The rise would be lower than the 20 percent growth, equivalent to revenue of $7.34 billion, projected by the company in 2012," the Reuters report stated. This immediately saw software stocks dragging lower.

A report in the Economic Times also revealed that software major Infosys' top management has told analysts in the last few days that the company may miss its organic growth guidance of 5% for the current year because of delays in decision-making, ramp-downs in certain projects and also the impact of Hurricane Sandy, particularly in the manufacturing space.

Even the guidance from a mid-sized company like Hexaware was disappointing after it said that it expects to grow at 18 per cent in the financial year, instead of the 20 per cent guidance it had given at the beginning of the year.

To compound the set of bad news was the fact that Infosys was replaced in the NASDAQ 100 index making way for the California-based Facebook.

Clearly, it's not happy times for the IT sector with growth and client spends dwindling. The fast appreciation of the rupee is likely to add further pressure on margins.

Till the hazy picture clears itself, it's best to stay away from IT stocks.


Read more about: infosys, tcs, wipro
Story first published: Saturday, December 8, 2012, 9:47 [IST]
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