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Information technology (IT) stocks gained focus on Thursday in a volatile market after India’s top three software and services exporters — Tata Consultancy Services (TCS), Infosys Ltd and Wipro — reported their third quarter numbers on Wednesday.
Infosys reported stellar results beating street projections for the quarter ending December 31, followed by TCS while Wipro’s numbers missed market expectations. TCS, however, missed market expectations in terms of margins.
Infosys reported $4.25 billion in revenue, a 7 per cent growth quarter-on-quarter (QoQ) and 21.5 per cent year-on-year (YoY). It also raised its FY22 revenue growth guidance to 19.5-20 per cent from 16.5-17.5 per cent it had indicated earlier.
The country’s largest IT services player, TCS, said it had reached a key revenue milestone of $25-billion-plus, even as it announced an ₹18,000- crore buyback programme.
Clocking $6.524 billion in the third quarter, its revenue on an annual basis grew 15.4 per cent in constant currency terms. However, TCS profits were largely flat.
Wipro’s revenue grew on a constant currency basis to $2.64 billion in the reporting quarter , a 3 per cent QoQ sequential growth.
For the first nine months of the current fiscal, the revenues stood at $7.63 billion, a growth of 28 per cent over the corresponding previous period.
However, the net income in the quarter remained nearly flat at $399.1 million. It provided a cautious guidance of 2-4 per cent growth for the next quarter. Wipro also declared an interim dividend of ₹1 per share. While brokerages and analysts remained bullish on Infosys, views on TCS and Wipro were mixed. Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The results of IT majors reinforce the fact that the industry is in a multi-year expansion cycle.”
ICICI Securities said: “Despite Q3 being a seasonally weak quarter, Infosys and TCS surprised while Wipro was below street expectations (though within guidance range).”
“Overheated and lifetime high valuations of many stocks more than capture the near-term strength/predictability in earnings,” it added.
Jefferies bullish on Infosys
Infosys, after hitting a high of ₹1,912 during the day, closed at ₹1,897 on the BSE on Thursday, up ₹19.40 or 1.03 per cent, over the previous day’s close.
Jeffries gave the stock a Buy rating at the target price of ₹2,200, citing key risks as weaker revenue growth, lower margin, unfavorable currency and corporate action.
Motilal Oswal, citing a 23 per cent upside, also gave the stock a buy rating at a target price of ₹2,310.
HDFC Securities also maintained a buy rating at a target price of ₹2,200, “ following a significant beat in revenue and a strong growth outlook.”
TCS
TCS closed at ₹3,897.65 on the BSE, up ₹40.40 or 1.05 per cent. It had opened at ₹3,934 as against the previous close of ₹3,857.25 and climbed to a high of ₹3,944.40 during the day.
Goldman Sachs, which retained the buy rating with a target price of ₹4,747.
“TCS has lowest attrition in industry and best capability among our coverage to fulfill and capture growth potential in strong demand environment,” it said.
However, Citigroup gave a sell rating with a target price of ₹3,580, saying that Q4 is likely to be impacted due to a base effect in BFSI segment.
Morgan Stanley has maintained its overweight on TCS with a target price of ₹4,400. Bernstein too maintained its outperformer rating with a target price of ₹4,330 while TCS received a neutral rating from UBS with a target price of ₹4,180.
Motilal Oswal Research, citing a healthy topline and a strong outlook gave it a buy rating at the target price of ₹4,250 with a 10 per cent upside.
Wipro
Wipro faced pressure in the bourses, closing 6 per cent lower. It closed at ₹649.85 on the BSE, down ₹41.50 or 6.00 per cent.
The stock received a neutral rating from Motilal Oswal at a target price of ₹720 with a 4 per cent upside while Emkay gave it a hold rating with a ₹700 price target, factoring in its Q3 performance and considering “rich valuations.”
Nirmal Bang in a report said: “In a seasonally weak quarter, Infosys (to a greater extent) and TCS (to a lesser extent) delivered better-than-expected revenue growth. Wipro reported weaker-than expected revenue growth, but within its guided band.”
“Commentary of all three managements indicated continuing strong demand environment. Higher Tech intensity (higher spend on technology as percentage of sales) will be the key driver of the higher than FY15-FY20 growth trajectory that we are likely to see in the foreseeable future,” it said.
“We remain positive on the sector and have an Accumulate stance on all three - TCS, Infosys and Wipro,” it further added.
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