Stocks across the IT space, both large and mid-sized, tumbled on Thursday after bellwether Infosys pruned its guidance for 2011-12 revenues for a second time after meeting the Street?s expectations for the December quarter. The Bangalore-headquartered firm, which kicks off the results season, did well in the three months to December with margins expanding.
However, the software major cited weaker economic growth in its biggest markets, including Europe, and reduced its FY12 sales estimates in dollar terms while warning of lower client spending. Infosys reduced its FY12 revenue guidance from a range of 17- 19% to 16.4% yoy after directing for flat sequential or (qoq) revenue growth for the quarter ending March 2012. The stock tumbled 8.4% and closed the session at 2,588.25.
The heavyweight?s decline also brought down other bluechip IT scrips, including that of rival TCS which plunged 4.2% to R1,089.5. Wipro and HCL followed suit with more than 2% declines. The top four software providers were among the biggest losers in the 50-share benchmark Nifty index. The CNX IT, the sectoral index, lost 6% to end the session at 376.5. Given that Infosys is among the larger IT companies, the Street was looking to it for a good guidance. However, investors were disappointed and the sentiment weighed on other IT players like Tech Mahindra, Polaris, Mindtree, which fell 2% to 4%.
Following the expectations of lower IT spending and delays in decision making in 2012, the Infosys management guided for lower revenues . Analysts say the March quarter guidance is a negative surprise and now await TCS numbers due next week.
According to Citi wealth Advisors note said,?The big debate is whether the weakness is sector specific or company-specific demand trend and clarity will emerge after TCS results.?
J P Morga, while called the disappointing guidance as the highlight of the result, it assessed the demand weakness to be Infosys specific issue. ?The guidance is particularly disappointing given that Q4 will have an additional working day due to the leap year, which should add about 1.6% to revenue growth,? it said.
Infosys reported 3.4% sequential growth in its December quarter revenues, in line with expectations, while Ebitda came in at 33.7%. Net profit stood at R2370 crore.
againstBloomberg estimate of R2,286 crore.
