CNX IT index hits six-month low ahead of TCS results

Since April, the CNX IT index has dipped nearly 9% against a sub-2% decline in the CNX Nifty.

Shares of information technology (IT) companies were under pressure, with the National Stock Exchange (NSE) CNX IT index touching six-month lows ahead of Tata Consultancy Services (TCS)' April-June quarter results today.

TCS and HCL Technologies were down 2% each at Rs 2,537 and Rs 914 respectively, while Infosys (1.6% at Rs 942), MindTree (1% at Rs 1,215) and Oracle Financial Services Software (1% at Rs 3,857) were down between 1% and 2%. However, Tech Mahindra and Wipro were trading in the green, up by less than 1%.

At 1033 hours, the CNX IT index was down 1.29% or 142 points at 10,880 compared to a 0.07% decline in the CNX Nifty. The IT index has touched a low of 10,868, its lowest level since January 2015, in intra-day trades.

Since April, the CNX IT index has dipped nearly 9% against a sub-2% decline in the benchmark index.

The managements of Tech Mahindra, Persistent Systems and KPIT Technologies have already indicated sluggish growth and margins in April-June (1QFY16) quarter.

According to Antique Stock Broking, after two quarters of cross-currency impact in excess of 100-200bps, the currency impact is likely to be marginal and less than 50bps for IT companies. However, seasonal increase in costs such as salaries and visa are likely to impact companies’ reported EBITDA (earnings before interest tax depreciation and amortization) margins.

In 1QFY16, we expect reported organic USD revenue growth for companies under our coverage to be around 2.4% on a quarter-on-quarter (QoQ) basis, the broking firm said in Q1 results preview.

The EBITDA margins of top-3 IT companies is likely to dip 90-210 basis points (bps) owing to wage hikes and higher visa costs, partially offset by currency. While TCS’ and Infosys’ margins may fall 210bps and 200bps QoQ respectively, Wipro’s margin could tumble 90bps (1-month wage hike impact), according to Edelweiss Securities.

Meanwhile, UBS said TCS' reported dollar revenue growth in 1QFY16 is ikely to be up 4.3% on a Q-o-Q basis.

“Constant-currency revenue growth at 4.4% QoQ, implying cross currency impact of -10bp, EBIT margins up 984bp QoQ, as Q4 FY15 included one-time employee bonus payment of US$ 423 million,” the foreign brokerage said in a report.