Are IT cos giving the sector a poor name by lowering guidance?

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26 Aug, 2025 12:21

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Moneycontrol BureauTata Consultancy Services’ (TCS) cautious stance on growth is indicative of difficult times ahead for the IT sector. Analysts believe the sector is unlikely to repeat its upward trend seen previously, especially after most IT companies missed their first quarter estimates for this fiscal year.TCS today warned of a softer second quarter due to reduced discretionary spending by clients in Banking, Financial services and Insurance vertical. The company also said that it will update its investors in the second quarter over the same. “IT stocks have been on a decline as the index rises,” says Sanjiv Bhasin of IIFL. TCS’s profit warning is negative for the entire sector and pressure is expected on largecaps and midcaps both.In July this year, post Q1 results, Infosys too cut its FY17 revenue forecast to 10.5-12 percent from the previous guidance of 11.5-13.5 percent. The management had attributed the missed performance in Q1 to challenges in consulting and core banking business. Industry analysts believe that the Brexit in Europe and macro-economic issues in the United States will continue to weigh on IT companies. Clients in the US are cutting discretionary spending due in banking and financial space, which is a negative for the whole sector, says Karan Taurani of Dolat Capital. Taurani further adds that the industry is likely to grow at 8-10 percent now, which is lower than 10-12 percent guidance expectation. There is a downward revision for growth in largecap IT companies. After Infosys, it was Cognizant Technology Solutions that slashed its full year revenue guidance last month to 8-9 percent from 10-14 percent. For the company, which follows a calendar year, it was the second straight quarter for which it had guided for a cut. The growth is even lower than Nasscom’s guidance of 10-12 percent for FY17. Joining the list is the midcap IT firm Mindtree, which expects its second quarter growth to be lower than the first quarter on back of cross currency movements and project cancellations. Despite the guidance cuts by companies, industry body Nasscom is sticking to its full year guidance. In an interview to CNBC-TV18, Nasscom Chairman R Chandrasekaran said: “There are different factors which are causing turbulences be it economic, progression in trajectory of different economies.”The guidance will be reviewed after second quarter earnings numbers by Nasscom.Nasscom is not alone is painting a rosy picture. Franklin Templeton gave a balanced view saying that although IT companies may not de-grow, investors are wary of comparisons with other sectors.