Tech stocks look set for their seventh day of gains in eight sessions as strong performance by U.S. based Cognizant Technology Solutions lifted sentiments in IT stocks. The BSE IT benchmark traded 0.8 per cent higher outperforming the broader Sensex, which traded lower. Cognizant, whose majority of employees are based in India, not only maintained its annual sales forecast, but upped its Q2 sales forecast to at least $2.13 billion, which was ahead of estimates.
Here's how Cognizant's Q1 is a positive for Indian outsourcers
Back-ended growth fears to subside: Cognizant not only reported better sales (3.7 per cent sequentially) in the first quarter, but its Q2 sales forecast also outpaced Street estimates. This is likely to allay Street fears of stiff back-ended growth requirement in the second half of 2013 to meet 2013 growth guidance and the possibility of similar result disappointments at Infosys and Wipro, global investment bank Nomura said. Cognizant is on track to meet its 17 per cent revenue growth guidance for 2013. (Read: Cognizant shares surge 6% as Q2 sales seen above estimates)
Demand environment: Cognizant's strong earnings indicates healthy demand environment with no push-backs in decision making. Among verticals, banking continued to see strong traction, Nomura said. Financial services contributed 40 per cent to Cognizant's sales in 2012, with more than half of that coming from the banking industry. This might be most heartening for Infosys, whose dependency on discretionary spend is much more than the industry on an average.
Strong growth in Europe: Cognizant's Q1 sales from Europe rose 23 per cent, outpacing a 16 per cent growth in North America. Indian IT firms have also made a strong push to win deals in continental Europe, to reduce their dependent on U.S., and Cognizant's earnings shows this shift is working as more and more European companies turn to outsourcing to bring down costs.
Cognizant told analysts during a conference call that clients are not delaying decisions on account of the Immigration Bill. "This comes as a relief to us, as we feared that uncertainty could potentially slow the flow of business to Indian IT players in the near term," global investment bank Jefferies said. The Immigration Bill seeks to curb the number of foreign workers who can be sent to the United States by companies such as Infosys and TCS.
(With inputs from Reuters)
