Investors Get Nervous In IT Stocks As TCS, Wipro, HCL And Infy Fail To Deliver

Business

oi-Sunil

By Sunil Fernandes

Updated: Saturday, April 25, 2015, 9:23 [IST]

Investors are increasingly getting nervous on IT stocks. Among the biggest four in the Indian IT industry, not one outperformed in terms of revenues or margins. Profits were also below estimates.
TCS plunged 4% on the day of its results, Infosys was down 5% on day of results and HCL Tech 7%. Dittto for Wipro.

The problem for the markets is that the commentary has also not been encouraging. "Pricing continues to be under pressure due to increasing commoditisation in the traditional outsourcing business, requiring us to ramp up productivity through automation, and enhance our differentiation in large engagements," U B Pravin Rao, Chief Operating Officer of Infosys said.

This is what markets are increasingly worried about. If pricing pressures remain it could in the end dent margins for most of the IT companies.

On the other hand companies have to keep increasing wages to keep attrition low, which again tends to play on margins. To compound worries cross currency headwinds maybe here to stay.

The guidance of IT companies was also not too encouraging. Wipro guided for a flat Q1 quarter in terms of revenues. Infosys has guided for a 10-12 per cent revenue growth in 2015-16, but many analysts consider that as a little optimistic.

It's going to be a flat few quarters for the IT industry. Almost all of the top mutual funds in the country own IT company stocks. If these stocks keep falling, the net asset values of the mutual funds is likely to fall.

One thing is certain; if any industry analyst things it's going to be solid growth for the IT industry in the future, it may be optimistic.

Perhaps it's time to at least partially book profits in IT companies and renter these stocks after a 10 per cent correction in the very least.

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