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TCS, Infosys & Tech M to do much better than Cognizant: Urmil Shah, IDBI Capital

The problems are more specific to Cognizant and that quarterly volatility might continue, says Shah

ET Now|
May 03, 2019, 03.16 PM IST
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Urmil Shah-IDBI Capital-1200
Cognizant guidance cut can at best have sentimental impact on other IT companies, said Urmil Shah, Vice President & Research Analyst, Institutional Equities, IDBI Capital, in an interview with ETNOW.

Edited excerpts:


Would Cognizant’s guidance cut have a largely sentimental impact on Indian IT companies or should one relook at estimates on revenue growth as well as on the margins front?

It is more to do with the sentimental impact in the near term because if we need to look at all the companies on an individual basis, large clients would be the same for other companies also. If you look at the earnings announced till now, both Infosys as well as TCS have given relatively positive outlook on BFSI compared to last year.

Similarly, Larsen & Toubro Infotech (LTI) just concluded its call and even they have faced issue with the largest client which is a BFSI client and they are expecting growth to pick up from Q2 onwards. I would say that we should not paint the entire sector with the same brush. It is more a near-term negative on the stock prices and not on growth for this sector.

But whichever way you look at it, there are certain overarching themes. For example the BFSI client space is seemingly weak, which you have touched upon. There have been certain pain points for Cognizant. It also came out with a voluntary retirement scheme. Is the worst over for Cognizant?

The quarterly volatility might continue for Cognizant but this would be more because of the pressure which they are seeing in the healthcare vertical. Cognizant is the strongest in healthcare side. And the company has attributed that there is still softness in this vertical given many related integration that its clients are going through. This is not the case with others except Wipro which is also HPS related impact.

I would say that it is more specific to Cognizant and that quarterly volatility might continue and things might get stabilised towards the end of the year and not immediately.

Cognizant has given a very weak outlook with respect to BFSI as well as healthcare and even the communication segment. How does it bode for the Indian IT companies because even they have been facing a bit of a setback in those segments?

At the cost of repetition, I would say that we will have to look at it from a company specific point of view. The insurance vertical has been doing well for TCS. The issue has been more on the BFSI part and more on the banking side and not on capital markets and wealth management.

We believe that companies like TCS and Infosys will still do very well on the growth front. In fact, on the communications vertical, we believe the likes of Tech Mahindra should see a strong pickup in growth as the ramp-up of the large deals which they have secured in the first three quarters of FY19 as well as the deal pipeline for 5G related solutions remain strong. I believe that these three companies will still do much better than Cognizant.

Also Read

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Cognizant fires unionist for 'performance reasons'

Growth is Cognizant's DNA, margins are no motivation: Brian Humphries, CEO Cognizant

Cognizant to buy technology consultancy Contino

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