Warning bell! TCS at 6-month low, dives 6% on Q2 cautious

Shares of Tata Consultancy Services slumped over 6 percent, hitting six month low at Rs 2287 per share in early trade on Thursday. Investors are quickly selling the IT major on concerns as the company indicated that it has seen holding back of discretionary spending particularly in Banking and Financial Services Solution (BFSI) in the US resulting in sequential loss of momentum. TCS said that customers in BFSI vertical are showing abundant caution outlook. TCS has also said that it will update investors on business trends in Q2 FY17.

Analysts are also a bit cautious about the sector as a whole. Ravi Menon of Elara Capital says that Federal Reserve not hiking rate is impacting net income of banks in the US which is adding pressure on companies and could have led to cautioning views. Anand Radhakrishnan of Franklin Templeton Investments says that near-term headwinds are evident in IT stocks. However, he sees bigger growth opportunities in the IT sector in medium to long-term. Trend in IT sector may look a bit grim as MindTree and Cognizant has already lowered its guidance for the quarter. Last week, Mindtree issued Q2 guidance warning stating that revenue decline is expected due to cross-currency movements, project cancellations and slower ramp-ups in a few large clients across different verticals and continued weakness in its UK-based subsidiary Bluefin. Mindtree is also cautious that its Q2 margins are going to be lower than planned with a decline in EBITDA margins in Q2 FY17 compared to Q1 FY17. Cognizant, too, slashed its full-year revenue forecast for the second consecutive quarter. Meanwhile, TCS Q1 profit fell 0.36 percent sequentially to Rs 6,318 crore in Q1 but that was supported by better operational numbers. Revenue increased 3 percent QoQ to Rs 29,305 crore in the quarter ended June 2016. Revenue in dollar terms grew by 3.7 percent to USD 4,362 million and constant currency growth was 3.1 percent compared to preceding period. At 09:42 hrs Tata Consultancy Services was quoting at Rs 2,316.30, down Rs 130.70, or 5.34 percent on the BSE.