Wipro results temper IT sector euphoria on uncertain demand

Jan 19 2013, 01:43 IST
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SummaryWipro Q3 net up 18%; softer guidance pulls scrip down 8%

Wipro's less-than-perfect score on its quarterly earnings report card threw a measure of doubt over the sector's near-term outlook, with new projects and contracts still elusive.

Since a week ago, better-than-expected results from Infosys, Tata Consultancy Services and HCL Technologies sparked a 13 per cent rally in the sector subindex that grinded to a halt on Friday. While Wipro did join its domestic rivals in topping profit forecasts, investors punished its shares after its core services business lagged expectations and revenue guidance for the current quarter was subdued.

"Put together, they do not necessarily indicate a material improvement from an end-demand perspective," said Kuldeep Koul, an analyst at ICICI Securities in Mumbai.

"But what it does indicate is that companies like Infosys are now starting to execute better in an environment which remains challenged to an extent," he said. Economic uncertainty has led clients in the US and Europe, which account for more than 75 per cent of India's IT outsourcing revenue, to spend cautiously. "The overall demand environment has not changed much over the last three months. We see momentum in certain areas and certain other areas continue to remain challenged," Wipro CFO Suresh Senapaty said.

The "fiscal cliff" and the looming "debt ceiling" in the US have dented spending sentiment, he said.

Reflecting that sentiment, a Morgan Stanley survey of corporate chief information officers in the US and Europe published this week showed external IT spending growth expectations for 2013 had moderated to 2.7 per cent from 3.8 per cent in October.

Still, global demand this year is expected to be better than in 2012, with research firm Gartner forecasting worldwide IT services spending to rise 5.2 per cent to $927 billion, compared with growth of just 1.8 per cent in 2012.

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