At 09:39 am; Nifty IT index was down 3.3% at 14,648 points as compared to 2.6% decline in the Nifty 50 index. The IT index tanked 5% in past two trading days against 1.2% fall in the benchmark index.
TCS, Infosys, HCL Technologies, NIIT Technologies, Mindtree, Tata Elxsi and Infibeam Avenues from the Nifty IT index were trading lower in the range of 3% to 7% on the NSE today.
The brokerage firms are expecting TCS to continue with its good performance in the second quarter of FY19 as well. The IT services firm had posted 23.5% rise in its consolidated net profit at Rs 73.62 billion, while in sequential terms, the net profit grew 6.3% for the first quarter ended June 2018 (Q1FY19).
Valuations of TCS are rich and company needs to guide for continued strength in revenue growth in 2HFY19 (October-March) as well for the stock to retain momentum. TCS stock has risen 50% in last six months.
Prabhudas Lilladher expects Tier 1 IT vendors to show a steady execution in Q2FY19. TCS/Infosys/HCL Technologies are expected to deliver steady results while Wipro/Tech Mahindra could report softer USD revenue growth.
“Constant currency revenue growth for the quarter would be in the band of 0.5-3.5% QoQ for 2QFY19 (TCS to report the strongest growth and Tech/Wipro the weakest). Cross currency movements would be a headwind for reported USD revenues owing to depreciation of Euro/GBP/ AUD/INR vs USD. We expect cross-currency movements to be a headwind of 90-150bps for Tier 1 IT vendors (based on the mix of revenues),” the brokerage firm said in the earnings preview.
The brokerage firm expects EBIDTA margins of IT vendors to improve by 30 to 150 bps QoQ. While steep rupee depreciation might aid medium term margins, companies might have to gradually pass on the benefits to clients over a long term.
“In our view, bottoming cyclical pressures and improved capital allocation are factors that will feed into valuation multiples favorably. Moreover, the currency will keep earnings growth ticking further. That said, many stocks demonstrating the impact on earnings and increasing payouts already appear expensive. We remain selective on our picks, looking at both performance improvement and valuation comfort,” Motilal Oswal Securities said in results preview.
“We remain optimistic about growth acceleration in the sector. Accenture’s Q4FY18 (double-digit revenue growth) bolsters our confidence. Mid-caps would outgrow larger peers, but their growth rate differential will narrow. We perceive a positive bias towards large-caps in the medium term given their large-scale execution capabilities and better valuations,” analysts at Edelweiss Securities said in sector result preview.
Nifty IT index has corrected 10% from its all-time high level of 16,361 touched on September 25, 2018, on the NSE in intra-day trade. Before that, it had outperformed the market and rallied 39% against 5% rise in the Nifty 50 index.
|L & T INFOTECH||1735.00||1795.65||-3.38|