Nifty IT falls post TCS, Infosys results; sector to underperform

Information technology (IT) sector was in focus on Friday, with the NiftyIT index falling nearly 1% after two of its biggest constituents, Infosys and TCS, announced their Q1FY18 results.

So far in 2017, the index has underperformed the market by gaining 2% against 18% rise in the benchmark index amid concerns of rupee appreciation, wage hikes and visa related issues.

At 11:00 am, the Nifty IT index, however, trimmed its losses and was down 0.6% as compared to 0.3% fall in BSE Sensex.


While Infosys beat street expectations to gain as much as 3%, TCS was the top loser on the frontline indices on a below-estimate Q1 performance.

Shares of the second largest IT major, Infosys touched Rs 1,000-mark for the first time since May 30, 2017 after the company reported a 1.4% growth in profit to Rs 3,483 crore and revenue rise of 1.8% to Rs 17,078 crore, on the back of improved operation controls. The stock has rallied over 5% in July so far.

TCS, on the other hand, fell as much as 2.2% after it saw its first quarter profit drop 5.8% to Rs 5,950 crore due to currency fluctuations and wage hikes as the banking and financial services and retail businesses slowed. The scrip gained around 2% in July so far after a over 7% fall in June.

Going ahead, anlaysts expect the stocks to under-perform. ICICI Securities, for instance, has downgraded TCS to hold post the Q1FY18 numbers.

“Our earnings estimates for FY18/FY19 were already lower than consensus by 3-4% but we trim our estimates modestly further by 1.9% and 1.5% for FY18 and FY19, respectively. Target price moves from Rs 2,411 to Rs 2,375. Downgrade to HOLD,” the brokerage said in a post result note.

Among other IT sector firms, Tata Elxsi fell 1.75%, HCL Tech tumbled 1%, MindTree declined 0.5% and Wipro shed 0.4% in today’s trade. Only 2 stocks were trading in positive on the Nifty IT index.

“IT sector, as a whole will continue to underperform the benchmark indices as there has been a massive structural change for the large companied. In rupee terms, they have been bringing single digit revenue; even the profit is either in single digit or in negative, which is very rate in the history of IT sector. So, in the short-to-medium term, the sector will underperform,” said G Chokkalingam, Founder & Managing Director of Equinomics Research & Advisory.

Adding: “The wealth creation story in the large IT stocks has been over for a while now. Since, they are not able to grow organically; there will be a lot of opportunities for M&A activities in the IT space. Hence, the inorganic growth will get further momentum. Therefore, will recommend quality mid-sized IT companies.

At current valuations, Chokkalingam prefers Infosys, followed by HCL tech among the top four IT companies (Infosys, TCS, Wipro and HCL Tech).

Nifty IT falls post TCS, Infosys results; sector to underperform

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s