Shares of information technology (IT) companies took a hit despite a firm broader market after Cognizant Technology Solutions' revenue growth targets for its management sparked concerns that growth rate of Indian outsourcing firms will slow in the next financial year.
The BSE IT index today dropped 1.22% to 5,779.43 underperforming the benchmark Sensex which added 0.23% to 19,391.86.
Bangalore-based Infosys and Wipro were the worst hit with each falling nearly 2%. While, HCL Technologies declined 1.27% and TCS ended just 0.1% lower.
In a filing to the US market regulator Securities and Exchange Commission (SEC), Cognizant said its top executives will earn 100% of performance-linked shares if its sales expands by 16% to $8.5 billion for the year ending December 2013.
In recent years, Cognizant's revenue growth forecast has more or less been in line with the growth target its sets for its senior executives. Also, the company's revenue growth is several notches higher than that of other Indian IT firms.
For 2012, the company is expected to post revenue growth of 20%, nearly double the rate at which the Indian IT industry is expected to grow.
Industry body Nasscom expects Indian IT services exporters to grow by 11% for the year ending March 2013.
Analysts said lower 2013 growth projection of Cognizant didn't bode well for the Indian outsources.
Foreign brokerage CLSA in a note to its clients said that Cognizant's growth expectations imply at best 8-14% growth for Indian IT services exporters.
“The revenue growth targets set for the next year for achievement of 50-100% stock payout are below expectation at 12-16% versus our anticipation of 15-20%. This range was 19-23% when it was set for 2012, so it appears that Cognizant is expecting some growth moderation in 2013,” said Nomura in a report. “We view this development as negative for Indian IT as well, where there are expectations of revenue growth acceleration being built in by consensus for the next year,” the report added.
The BSE IT index has underperformed the broader market by 25% so far in 2012. The BSE IT index has risen just 0.5% for the year, while the Sensex is up 25.5% during this period.
Infosys has declined over 13%, while Wipro is down nearly 5% this year so far. These two IT majors are growing at a much slower pace than its rivals.
