TCS, Infosys, Wipro, HCL Tech, TechM shares: What Cognizant's Q4 results, weak commentary hint at

Cognizant's fourth quarter results commentary was weaker than domestic IT peers such as Tata Consultancy Services (TCS), Infosys Ltd and Wipro Ltd. Its revenue declined 1.7 per cent YoY to $4.76 billion, which was within its guided range but lower than Street’s estimate. The Cognizant management gave a modest 2024 guidance of minus 2 per cent to 2 per cent CC YoY, which included 100 basis points of inorganic contribution). Bookings came in decent at $26.3 billion, up 9.1 per cent YoY, with the trailing 12-month backlog healthy at 1.4 times book-to-bill.

"After a modest 2023 (minus 0.3 per cent CC YoY), Cognizant has guided for a weak CY24—which hit the turnaround hopes of its business. It remains significantly behind its large-cap peers—even more so than smaller peers, which are expected to report high-single-digit to mid-teen growth in FY25," Nuvama Institutional Equities said.

Nuvama said Cognizant's results and commentary were weaker than most large-cap Indian IT Services companies, which have started talking about bottoming out (TCS) and green-shoots (Wipro). The management expects lower contribution from smaller size deals and is also not building in any material improvement in discretionary spends given macro uncertainty.

"We view the underperformance by Cognizant as a reflection of company-specific issues as it strives to turn around its business under the new management team. For the Indian IT Services sector, we remain positive and expect strong deal-wins of the last few quarters to gradually convert to revenue over coming quarters, even as the US macro becomes favourable," Nuvama said.

JM Financial believes said the earning upgrades for IT firms won’t be as forthcoming. It said S&P500 earning upgrades have been minimal over past six months and US banks are still talking about driving cost efficiencies. The NYCB sell-off indicates regional banking crisis may not be behind.

On the other hand, said JM Financial, Hyperscalers’ results have been incrementally positive. While that gives hope for better downstream demand, one needs to see if that results in net new demand or mere reprioritisation of IT budgets, it said.

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