Nifty IT dips over 2% as TCS misses Street estimate, Infy likely to put up a poor show

Nifty IT index on Thursday witnessed a 2 percent slump after Tata Consultancy Services (TCS) earnings for Q4FY23 missed expectations of the Street traded down 2 percent.

Despite a 14.8 percent year-on-year (YoY) rise in consolidated net profit at Rs 11,392 crore and a 16.9 percent growth in revenue to Rs 59,162 crore, TCS missed estimates, with quarterly growth at 1.6 percent for revenue and 5.0 percent for net profit. Earnings before interest and taxes (EBIT) margin contracted 0.5 percent to 24.5 percent.

While analysts predicted subdued growth in a seasonally weak quarter, the recent US banking crisis has resulted in estimate cuts by analysts and increased caution among investors.

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“Q4 missed across board from unexpected weakness in US and continued Challenges in Europe,” said JPMorgan who have given TCS an ‘underweight’ rating and a target price of Rs 2,700, implying a downside of around 17 percent.

Indian IT companies that rely heavily on revenue from the BFSI sector, particularly from the US and Europe, are facing significant setbacks due to the banking crisis resulting from the collapse of SVB and the subsequent takeover of Credit Suisse by UBS.

As clients in these markets face liquidity concerns, IT firms are expected to see decreased technology spending budgets and delayed decision-making, leading to project deferrals.

While TCS recorded an order book value of $10 billion this quarter, Morgan Stanley, with an ‘equal-weight’ rating and a target price of Rs 3,350, says clarity is limited on whether sentiment has troughed despite the strong order book.

The rest of the IT pack is also expected to largely follow a similar trend and either report flat or negative growth for Q4FY23.

Also Read: Infosys Q4 Preview | Infosys may post muted growth in Q4 on weak financial services demand, seasonality

Infosys, India’s second-largest IT firm, which will be announcing its Q4FY23 earnings on April 13, is expected to see muted growth in its Q4FY23 results, with slight margin expansion. According to a poll of brokerages, quarterly growth for revenue and PAT is expected to come in at 1.4 percent and 0.6 percent. Infosys was trailing by 2.11 percent at 11.09am.

Other stocks weighing down Nifty IT Index include Persistent systems (4 percent), LTIMindtree (4 percent), Tech Mahindra (3 percent), Mphasis (3 percent) and HCL Tech (3 percent).

Kotak Institutional Equities has identified TCS, Infosys, Wipro, HCL Technologies, Mphasis, and LTIMindtree as among the Indian IT firms with exposure to some of the ailing banks.

As per the brokerage, the BFS exposure, excluding insurance, for TCS stands at 29 percent, Infosys at 26 percent, Wipro at 27 percent, HCLT at 14 percent, and TechM at 12 percent.

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