Tata Consultancy Services shares fell as much as 5 per cent on Wednesday after India's largest IT outsourcer said revenue growth in the March quarter is likely to be weaker than the December quarter. TCS' warning of slower growth comes days after Infosys put out a similar warning on its fourth quarter revenues.
"We are disappointed by the muted outlook for the quarter and expect constant currency revenue growth of around 2 per cent, down from our 3 per cent estimate earlier," said Kotak Institutional Equities in a report dated on Tuesday.
Basudeb Banerjee of Quant Broking told NDTV that TCS revenues may grow at 2.6-2.8 per cent sequentially in the March quarter as against 3 per cent in the December quarter. Seasonality (weak sales due to holidays and furloughs in western markets) and slowdown in Indian government's expenditure in the IT space are likely to weigh on TCS revenues in the fourth quarter, he added.
The cautious commentary by India's two large outsourcers has unnerved investors at a time when IT stocks have come under huge selling pressure. There's a churn going on in Indian stock markets with investors buying domestic focussed stocks amid expectations of a strong government post elections due in April and May. As a result, banking and capital goods stocks have risen, while IT and pharma stocks have fallen.
IT stocks have run-up in excess of valuations on account of over ownership by foreign & local institutional investors. Recent appreciation in the rupee has also hit IT companies, which earn a large part of their revenues in dollars.
TCS shares were down 4.8 per cent to Rs 2020 as of 09.40 a.m. The stock was the top Nifty loser. Other IT stocks also saw sharp selloff. HCL Tech and Infosys traded 2.7 per cent lower, while Wipro slipped 2.1 per cent.
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