Outlook on IT sector negative; TCS will disappoint like Infosys: SMC Global

Interview with Saurabh Jain, Head-Fundamental Research at SMC Global Securities

The IT sector is unlikely to perform well in FY18, says SAURABH JAIN, Head-Fundamental Research at SMC Global Securities. In an interview with Aprajita Sharma, he adds that IT companies should reward shareholders with buybacks and dividends given lack of growth opportunities at present. Edited excerpts: 

What is your take on the Infosys’ March quarter results?

The company reported the disappointing set of numbers, but in-line with the expectations. It lowered revenue guidance for the fourth time by forecasting it in range of 6.5% to 8.5% for FY18. The margins came in line with the guidance they previously stated. The business conditions are not favourable for the company in terms of catching up with the large deals, rupee appreciation and pressure on margins. The company announced to pay up to Rs 13,000 crore, or $2 billion, to shareholders via dividend or share buyback in FY18, which shows opportunities in terms of organic and inorganic growth are limited.

What is your stock outlook on Infosys?

Infosys fell about 2% after Q4 numbers, which shows the outcome was pretty much anticipated. The stock price is reflecting the downfall witnessed by company in terms of margins and growth. 

How do you see the IT sector perform in FY18?

The overall outlook for the IT sector is negative. If you look at Nasdaq, it has been making fresh highs, but Indian IT companies have been underperforming the markets. It tells the story in itself that IT companies are struggling to cope up with global business environment. Most fund managers are underweight on the IT sector. 

Your expectations from the TCS Q4 results? 

TCS will resemble the same picture of disappointing Q4 numbers. 

Do you think IT companies should keep up with rewarding investors with buybacks or dividends? 
 

IT companies are in lack of opportunities in terms of growth, therefore, it is better to reward shareholders with buybacks and dividends instead of sitting on pile of cash. It makes all the more sense for the companies like TCS where promoters are the largest shareholders.