Nifty IT index up 2%; TCS at two-month high

Thus far in the month of May, Nifty IT index was up 7% as compared to 1.8% rise in the Nifty 50.

Shares of information technology (IT) companies are trading higher in otherwise weak market with the Nifty IT index gaining 2.4% on the National Stock Exchange (NSE). By comparison, the benchmark Nifty 50 index was down 0.55% at 9,473 at 11:35 am.

Among individual stocks, Tata Consultancy Services (TCS) has rallied 5% to Rs 2,572, its highest level since March 15, 2017 on NSE. Wipro, Tech Mahindra, Infosys and HCL Technologies were up in the range of 1% to 3%.

Thus far in the month of May, Nifty IT index has outperformed the market by surging 7.1% as compared to 1.8% rise in the Nifty 50 index. In first four months of the current calendar year 2017, between January and April, IT index was down 4.4% against 13.7% surge in the benchmark index.

Since May 5, in past nine trading sessions, the market price of TCS appreciated by 11% from Rs 2,323 after the stock turned for ex-buyback of equity shares.

TCS on Monday, May 15, said it will commence its Rs 16,000-crore mega buyback offer from Thursday, May 18. The buyback programme, which received shareholder approval last month, will open on 18 May and close on 31 May, the company said in a regulatory filing.

In February, the board of TCS had approved the proposal to buy back up to 56.1 million equity shares at price of Rs 2,850 per equity share.

Share buybacks typically improve earnings per share (EPS) and return surplus cash to shareholders while also supporting share price during periods of sluggish market condition.

“All the major Indian IT companies declared their intentions to improve capital allocation. TCS and Infosys announced new capital allocation policies, committing to return a higher proportion of free cash flows to shareholders. Further, the top four players are also doing a potential one-time buyback of shares in FY18. Although payouts continue to rise, we need to watch out for consistency in this trend, as growth remains moderate,” analyst at IIFL Institutional Securities said in Q4FY17 review.

“We maintain our view of a similar growth outlook for 2017 for the Indian IT sector vs. 2016, forecasting 9% US$ revenue growth (vs. 9% in 2016), possibly driven by some pick in US BFSI spending. However, a material acceleration remains contingent on improvement in broader spending sentiments,” the brokerage firm said in a report.