TCS - India's biggest software services exporter plunged 5.8 per cent on the BSE, while the Sensex slumped 2.2 per cent at 16,546.18. Other frontline IT stocks - HCL Tech (-4.7 per cent), Wipro (-1.9 per cent) and Infosys (-1.6 per cent) also closed with deep cuts.
Here are 10 reasons behind the underperformance in IT stocks.
1) Investment bank JP Morgan has downgraded TCS to neutral from overweight saying the stock factors in all optimistic outcome.
2) A weak rupee helps IT companies as they earn their revenues in dollars. However, the rupee has pulled back to 52.81 against the dollar after falling to nearly 54 levels on RBI's intervention.
3) US based IT major Cognizant Technology Solutions (CTS) has cut its calendar year 2012 revenue growth guidance to 20 per cent from 23 per cent. Cognizant lowered its forecast for the full year for the first time in nearly four years. The stock closed 19 per cent lower in trade yesterday.
4) Earlier, Infosys had guided for muted growth of 8-10 per cent in fiscal year 2012-13 while Wipro had forecast flat to negative growth in June quarter. Cognizant lowering of growth forecast confirms a slowdown in the IT sector, which has been growing rapidly for the past two decades.
5) The banking sector - which brings in a quarter of Cognizant's revenue - was flat in the first quarter for the company, hurt by softness among top North American clients. Cognizant said it expects its banking and pharmaceutical sectors to remain sluggish for the rest of the year.
6) The Banking, Financial Services and Insurance (BFSI) vertical growth was 2.2 per cent quarter-on-quarter, making it the slowest growing vertical for Cognizant. The company has guided for 4.7 per cent QoQ growth in the June quarter against estimates of 7 per cent.
7) Cognizant's forecast reiterates what Infosys said in its March quarter numbers. Infosys had said that the company had seen "ramp down" in orders from various accounts and especially in the financial services sector. The BFSI vertical contributed over a third to Infosys' revenues in the March quarter.
8) Cognizant recorded 11 per cent growth from Europe for the first quarter, better than its earlier forecast. But the company is still not bullish on the region.
9) Headwinds in Europe, underlined by the electoral outcomes in France and Greece, could pose a serious threat to the growth of Indian IT firms, who have been trying to offset their over-reliance on US by aggressively targetting the European market.
10) In January, market research firm Gartner had also cut its forecast for worldwide IT spending growth this year to 3.7 percent from the 4.6 percent it estimated earlier.
(With inputs from Reuters)