TCS, Infosys lead fall in IT stocks ahead of third-quarter earnings due next week

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Mumbai: Shares of information technology firms on Friday fell ahead of the December- quarter earnings of Tata Consultancy Services Ltd and Infosys Ltd due next week.

Infosys Ltd closed lower by 2.5% and TCS closed down 2.18%. Both the stocks fell in four out of five trading sessions and the most since one month. HCL Technologies Ltd declined 3.55%—its biggest fall in eight months, Tech Mahindra Ltd 3.80%—its steepest fall in six months.

BSE IT Index closed down 2.54%—its biggest fall since one month—while India’s benchmark Sensex Index fell 0.44% to 26,759.23 points.

TCS will report its third-quarter earnings on 12 January and Infosys Ltd will report on 13 January. Tech Mahindra Ltd will announce its earnings on 30 January. The rest of the large cap IT companies like Wipro & HCL Technologies Ltd have not announced their earnings date.

According to 21 Bloomberg analyst estimates, TCS may post a net profit of Rs6,432 crore, while revenue will be at Rs29,610.50 crore. At least 22 analysts expect that Infosys may report a net profit of Rs3,557.20 crore, while revenue will be at Rs17,286.40 crore.

“We expect December quarter to be a subdued quarter for Indian IT companies, given the seasonal weakness due to lower working days and furloughs. Sharp cross-currency movement will further drag revenue growth for the sector,” PhillipCapital said in a note to its investors on 3 January.

“We expect large-cap companies to report constant currency revenue growth of -0.2% to 2.8% and 90-130bps negative cross-currency impact. Margins are expected to remain stable for most companies—hovering between -50bps to +50bps, over the last quarter. Management commentary will be of utmost importance in this quarter, especially outlook for CY17—post Brexit and the unexpected US election results,” the report added.

Brokerage firm, Antique Stock Broking, expects that Tech Mahindra and HCL Technologies are likely to lead with 3.5% (3% organic) and 3% (2% organic) quarter-on-quarter growth in constant currency, while Tata Consultancy Services and Wipro are likely to post 1.5% and 1.2% (0.2% organic) growth in constant currency. Infosys is likely to register 0.1% quarter on quarter decline in CC owing to the RBS contract cancellation (impact of 1.5% on a quarter-on-quarter basis).

Earlier this week, Infosys Ltd and Wipro Ltd warned employees about rising threats to the IT services industry.

Vishal Sikka, chief executive officer, Infosys, said in a letter to employees, “The world around us seems ever more influenced by the baser instincts and tendencies.” A note by Azim Premji, chairman, Wipro, spoke of “forces that want to shape the world into a place of exclusion, conflict and suspicion”.

Brokerage firm, PhillipCapital, maintained negative stance on the sector and expects revenue growth to decelerate over the next three years.

The brokerage firm believe that despite seemingly inexpensive valuations, it is not yet the time to buy the sector again. It maintained sell on TCS and Wipro, neutral on HCL Technologies and Tech Mahindra and buy on Infosys.

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