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Cognizant Q1 numbers likely to boost IT stocks

In the past 13 trading sessions, S&P BSE IT index tanked 1,086 points, or 9.30 per cent, to 10,585.87 on May 4.

Rahul Oberoi        Last Updated: May 5, 2015  | 12:47 IST
Cognizant Q1 numbers likely to boost IT stocks
In the past 13 trading sessions, S&P BSE IT index tanked 1,086 points, or 9.30 per cent, to 10,585.87 on May 4.

Market experts are upbeat on the domestic IT companies post the first quarterly numbers of Cognizant Technology Solutions, an American multinational corporation that provides custom information technology, consulting and business process outsourcing services.

For the first quarter ended March 31, Cognizant reported a 20 per cent and 9.7 per cent year-on-year rise in quarterly revenue and profit figures, respectively, helped by higher spending by healthcare and financial services clients in North America. The company also raised its top line growth prediction for 2015, to 19.3 per cent in constant currency terms from 19 per cent given in February, and predicted a 3.4 per cent sequential increase in April-June revenue.

"Sentiments for domestic information technology companies will improve post Cognizant quarterly numbers," said Alex Mathews, head of research, Geojit BNP Paribas Financial Services.

Shares of Tata Consultancy Services and Wipro were trading 1.79 per cent and 0.58 per cent higher, respectively, in noon trade on the Bombay Stock Exchange on Tuesday. Infosys and Tech Mahindra shares were, however, trading 1.02 per cent and 0.58 per cent lower, respectively, at the same time.

"We can see some short term impact of Cognizant result on the IT sector. We believe the sector is likely to register 10 per cent to 12 per cent revenue and profit growth in the ongoing quarter. Investor can buy Infosys, TCS and HCL Tech shares on correction for long term gains," independent market expert Ambareesh Baliga told businesstoday.in.

In the past 13 trading sessions, S&P BSE IT index tanked 1,086 points, or 9.30 per cent, to 10,585.87 on May 4. The index was at 11,672.30 on April 13. During the period, the share price of Mindtree plunged the most 15.05 per cent to Rs 1,260.35. It was followed by Wipro (down 13.11 per cent to Rs 541.70), Vakrangee (down 11.18 per cent to Rs 115.65), Infosys (down 10.93 per cent to Rs 1994.30) and Tech Mahindra (down 7.81 per cent to Rs 612.80).

According to a report by India Ratings & Research, domestic IT companies are likely to grow marginally by around 13 per cent y-o-y in the ongoing financial year, driven by improved business conditions in North America. Weak economic conditions in the European region will result in tighter budgets of European clients.

However, it is also likely to increase the focus on cost savings and hence, translate into improved growth prospects for low-cost offshoring destinations such as India. Both the regions together constitute about 75 per cent-80 per cent of the total revenue of Indian IT companies.

For the quarter ended March 2015, Tata Consultancy Services and CMC registered consolidated net profit of Rs 3,754.45 crore (down 30.60 per cent) and Rs 70.58 crore (down 21.08 per cent) against Rs 5,409.65 crore and Rs 89.43 crore, respectively, in the corresponding quarter a year ago.

On the other hand, net profit of Mindtree and Infosys grew by 31.06 per cent y-o-y and 3.54 per cent y-o-y to Rs 128.70 and Rs 3,098 crore, respectively, during the quarter.

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