“Based on data at the end of August 2016, the company has characterised customer outlook as one marked by abundant caution, with some holding back of discretionary spending - particularly in the BFSI vertical in the US, resulting in a sequential loss of momentum,” TCS said.
The US is the biggest market for India’s $150 billion software outsourcing sector, followed by Europe.
Last week, Bengaluru-based Mindtree had warned that its revenues in the second quarter are expected to be lower than the first quarter, a trend that market watchers feel is indicative of a “difficult” FY2016-17 for the Indian IT sector. Mindtree had attributed the warning to cross-currency movements, project cancellations and slower ramp-ups in a few large clients across different verticals.
“Mindtrees warnings confirms our thesis of a difficult FY17 (and most likely H1FY18) for the sector as a whole,” Emkay had said and added that it continues to “see downside risks to overall industry growth”.
Other larger companies Infosys and Wipro, that disappointed the street with muted first quarter numbers, had said they were facing unanticipated headwinds and slower project ramp-ups in large deals.
However, industry body Nasscom has so far maintained that there is no immediate reason to revise forecast of 10-12 per cent revenue growth in IT exports for FY17.
TCS Scrip tanks 5%; other IT stocks too dip
TCS scrip on Thursday plunged over 5 per cent, knocking Rs 24,797 crore off its market valuation, as the company has warned that its financial sector clients in the US are holding back on discretionary spends, leading to a “sequential loss of momentum”.
In the opening shares fell 6.53 per cent to Rs 2,287. It was the worst performer in the 30-share Sensex team. On NSE, shares of the company went down 4.85 per cent to close at Rs 2,322.10.
The firm’s market valuation saw an erosion of Rs 24,797.12 crore to Rs 4,57,365.88 crore. “For TCS and Infosys, Q2 is a high growth quarter and both the companies clock majority of incremental revenue in this quarter. With lack of momentum in the BFSI vertical, the chances of a strong Q2 2016-17 are dim... ,” Edelweiss Securities said in a note.