• Wed. Feb 28th, 2024

Worst day in two months for Indian, courtesy US cut guidance by half a billion

Worst day in two months for Indian, courtesy US cut guidance by half a billion

A note from Kotak Institutional Equities expects Indian IT earnings to weaken in the June quarter compared to March.

Indian technology services stocks such as TCS, HCLTech, Wipro and Infosys and other components of the Nifty IT index traded in losses on Tuesday after their global peers EPAM cut their guidance for the second quarter and full year of 2023. In fact, the top five losers in the Nifty 50 index are five tech names.

The Nifty IT index also fell 2.5 percent on Tuesday, its worst day since April 17 this year. All components of the Nifty IT index are trading at a loss.

EPAM reported the results on May 5, and last night it released a mid-quarter update that cut its guidance by about 5 percent. Street guidance was not taken well as EPAM was known to be a very fast growing company. The growth in the last two calendar years has been more than 30 percent.

However, EPAM now expects revenues to decline by 0.5-3.5 percent in 2023. This is the second time in as many months that it has cut its guidance. The new figure is a stark contrast to the more than 9 percent growth it had guided for in February this year. It revised that figure to 2.5-3.5 percent in May before coming out with the latest cuts.

Since EPAM called its earnings in May, clients have been more cautious when spending, particularly in the “build” segment of the IT services market.

After closely evaluating the changes in our May and June forecast data, we learned that pipeline conversions are occurring at a slower rate than previously assumed, and we see a slight decrease in total pipeline.

Analysts believe companies with high discretionary spending in the portfolio are at greater risk, as EPAM has greater exposure to discretionary spending.

A note from Kotak Institutional Equities expects Indian IT earnings to weaken in the June quarter compared to March. “We believe the demand environment is particularly weak in the financial services and technology segments,” the note said. Brokerages said they were surprised by the rise in stock prices across last month’s coverage given weak demand.

Here’s how Indian IT stocks fared since April 12:

Apoorva Prasad HDFC Securities said that EPAM has been lowering guidance for the past few quarters and part of their guidance cut was due to company-specific issues. Despite the cut in guidance, he expects mid-tier IT companies to post double-digit growth. He noted that the divide between tier-1 IT companies and others is widening and valuations in some pockets are stretched.

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