TCS, Infosys to Tech Mahindra: Nifty IT index dips after weak Capgemini earnings
Shares of IT companies fell on February 19 after Capgemini reported a 2% decline in annual sales. The Nifty IT index declined over 1% in early trade, with LTIMindtree, TCS, and Infosys among the biggest losers.
Stock market today: Shares of IT companies declined in the early morning trade on Wednesday, February 19, following a weak set of earnings announcements by the French IT consulting firm Capgemini.
Capgemini reported a 2% decline in its annual constant currency sales, Reuters reported, but narrowly beat analyst estimates, helped by sustained demand for its cloud and AI services.
The IT consulting firm pegged the 2025 sales outlook between a 2% decline and a 2% rise in constant currency terms, with an operating margin of 13.3% to 13.5%, which according to JP Morgan was "slightly less optimistic" than previously estimated.
Following this, Capgemini shares ended the session 10.22% lower.
Impact on Indian IT
Against this backdrop, the Nifty IT pack declined over 1% in intra-day trade to 40,785, with nine out of 10 index constituents in the red. However, the index recouped some losses and was trading 0.36% lower at 41,313.15 around 10.20 am, with LTIMindtree, Tata Consultancy Services (TCS), Infosys and Tech Mahindra leading the losers' pack.
LTIMindtree shares dipped 2.8% to the day's low of ₹5,511 apiece on the NSE. Meanwhile, index heavyweights TCS and Infosys lost 2% and 1.7%, respectively.
Shares of HCL Technologies, L&T Technologies and Tech Mahindra were last trading 0.2% to 0.55% lower. On the other hand, Mphasis, Wipro, Coforge and Persistent Systems stocks gained up to 1.7% in trade today.
Expert Take
Sagar Shetty, Research Analyst, Stoxbox said Capgemini's recent earnings report has had a noticeable impact on major IT companies such as TCS, Infosys, HCL Tech, TechM, and LTIM.
“The decline in the IT index is mainly due to Capgemini's subdued outlook for 2025, with a revenue growth target of -2.0% to +2.0% at constant currency. It's important to note that Capgemini's results might not be an accurate measure of growth prospects for Indian IT companies, as Capgemini derives most of its revenue from the Euro region (63%, including UK), while Indian IT firms mainly depend on North America. We anticipate that the momentum of Indian IT companies will improve, driven by the growing demand landscape in the US. This outlook is further supported by Capgemini's comments about improved demand in the second half of 2024, with positive signs in the BFSI sector,” Shetty added.
The revenue concentration of Capgemini is Europe-dominated with a larger proportion of the manufacturing mix, which is undergoing significant challenges due to weakness in Auto and Aero verticals, said Pritesh Thakkar, Analyst, PL Capital.
For the Indian IT service context, the concentration mix on both Geography and Functional (ER&D) aspects is relatively much lower vs Capgemini, he said, adding that the performance of Fin Service and Consumer-oriented vertical was strong in the US region, which has been a dominant market for Indian IT vendors and hence positive for the outsourcing providers.
"The stock price reaction has more to do with the company’s operational outlook and guidance, where the Street was already estimating revenue growth at the top-end of the guidance (-2% to +2%). Hence the downside risk was higher than what the market had anticipated,” he added.
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