India's TCS slumps 7% on fears large deals drying up

A private security guard stands at the exit gate of the headquarters of Tata Consultancy Services (TCS) in Mumbai, India, Oct. 13, 2016. REUTERS/Shailesh Andrade/File Photo

BENGALURU, Oct 11 (Reuters) - Shares of India's Tata Consultancy Services Ltd (TCS.NS) fell as much as 7% on Monday on fears that large deals that drove most of its growth in the past year were drying up.

TCS, India's largest information technology exporter, is the first among peers to report earnings for the financial second quarter, and its performance is seen as a gauge for the country's $194 billion IT services sector.

TCS on Friday reported total contract value, or orders, of $7.6 billion during the second quarter, down from $8.6 bln a year earlier and $8.1 billion in the June quarter. read more

With the absence of mega deals, moderation in deal wins is cautionary for elevated growth expectations being built in over the medium term, Ambit Capital analysts said in a research note.

TCS and rivals Infosys (INFY.NS), Wipro (WIPR.NS) and HCL Technologies (HCLT.NS) have won large contracts over the last one year from businesses investing in areas such as cloud-computing, digital payments, crypto platforms and cybersecurity.

"With mega deals largely missing for the industry in the last 2-3 quarters, this situation could play out for Infosys too after a great FY21 on lumpy deals," Nirmal Bang analysts said in a note.

"On the margin front, we are more sanguine as we believe that the cost pressures will peak in FY22."

TCS indicated that while it was able to sustain margins despite challenges in the supply side, employee hiring and attrition, it will remain on the watch out as it expects them to persist for the next couple of quarters.

IT companies have been dealing with wage increases, employee retention costs and higher attrition as remote working has unleashed a talent war in the sector.

Infosys will report its second-quarter results on Wednesday.

The country's main index for IT stocks (.NIFTYIT) was down 3%.

($1 = 74.9390 Indian rupees)

Reporting by Nallur Sethuraman in Bengaluru; Editing by Saumyadeb Chakrabarty

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