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Stocks of major information technology companies may face further selling pressure in the coming sessions as the overall trend has turned negative following losses this week. Stocks of Tata Consultancy Services, Infosys, and HCL Technologies declined over 3-6% this week due to bleak sales guidance for 2013 by their US peer Congizant Technology Solutions. On Tuesday, Cognizant said it would pay its senior executives 100% of performance-linked stock units if sales grow 16% in 2013. The revenue growth estimate of 16% is much lower than that of 20% for 2012. The revenue growth targets set for the next year (FY13F) for achievement of 50-100% stock payout are below expectation at 12-16% versus our anticipation of 15-20%.
The management of Infosys, too, had indicated that the company may miss its organic growth guidance of 5% for the current financial year due to delays in decision-making and ramp downs in certain projects. Infosys expects information technology spending from the banking, finance, insurance vertical to be under pressure in 2013 unlike peers Cognizant and TCS who have indicated some up tick. While an organic revenue growth guidance cut will be sentimentally negative, we note that Street has been building in 6% US dollar revenue growth for FY13 after incorporating the Lodestone acquisition for five months in FY13.
Yesterday, mid-cap company Hexaware Technologies lowered its sales outlook for Oct-Dec to $92 mln from $94.7 mln-$96.5 mln due to unforeseen changes to a project plan of a large client. This news dragged down stocks of the company down more than 9% yesterday to 96.60 rupees. We expect further losses in the stock and peg 93-94 rupees as immediate support. Sustaining above the 2,280 level in the coming week will be crucial for the stock to test its 200-day moving average of 2,480 rupees.
