Sustaining the premium price tag may be difficult for IT stocks

Ability to absorb cost pressure while maintaining growth would be crucial, say analysts

Pain in the IT sector was once again palpable when Cognizant Technology Solutions sharply cut its revenue and margin guidance for the calendar year (CY) 2019 on Thursday. Even some big Indian IT players have lowered their FY20 guidance. This suggests the financial performance of most IT players may be subdued in the coming quarters. In contrast, the current trailing 12-month price-to-earnings (P/E) valuation of the S&P BSE IT index at 21 times is still at a 9 per cent premium to its historical 5-year average. Thus, sustaining the valuation premium may be difficult for IT companies.

According to Amit Chandra,