• The reaction to Indian IT services March quarter 2012 performance was mixed. The Cognizant's full-year revenue growth guidance cut gave the thesis of slowdown a more industry-wide connotation. TCS and HCL got the thumbs up from the market (up 13% and 3%, respectively post results) while Infosys, Cognizant and Wipro were beaten down (down 13%, 19% and 7%, respectively).
• After Infosys' commentary stoked fears, positive commentary by TCS, HCL Tech and even by Wipro to some extent, allayed worries. However, while tones in commentary differed, guidance was weak across the board (even TCS' gross hiring number of 50,000).
• Divergent growth expectations explained by stark contrast in TCS and Infosys commentaries. TCS positive commentary was in stark contrast to Infosys’ caution-ridden guidance, be it around the business conditions in March, in the Banking and financial services outlook or wage hikes. Both Wipro and HCL Tech see positivity in the environment and clients’ current state of health, but caution remains in terms of that translating into aggressive spending on technology.
• An expectation of better-than-earlier-anticipated fiscal year 2012-13, which was on the back of industry association NASSCOM's guidance and encouraging US macro-economic data, stands challenged by the turn of events in March 2012 quarter. Motilal Oswal, the Mumbai-based securities company, expects Nasscom to revise expected growth for the industry downwards. For the year 2012-13, the industry body expecs the $ 100bn IT services industry to grow at between 11 to 14 per cent.
• Motilal Oswal believes that TCS is fully valued at the current market price and there is little upside in the stock. Given its near-bottom valuations, Infosys offers higher upside than TCS. The risk-reward is favorable for Wipro (on multiple levers to drive efficiency and growth) and HCL Tech (on revenue visibility lent by large deals signed).
(Based on Motilal Oswal research report)