You are here: Home » Markets » News
Business Standard

Test Time-wise correction due in large-cap IT stocks; TCS, NIIT Tech.

Though analysts remain bullish on the sector, they caution against the sharp rally seen thus far in CY18

Photo: Shutterstock A number of information technology (IT) companies have announced their earnings for the March 2018 quarter, which were mostly mostly in line with the analysts’ expectations. In some cases, the companies tweaked the guidance for financial year 2018-19 (FY19) to reflect the challenging business environment. Infosys, for instance, revised the EBIT margin guidance for FY19 to 22-24 per cent from 23-25 per cent (FY18) earlier. However, the net profit and revenues grew 2.4 per cent and 5.6 per cent, respectively year-on-year during the recently conclude quarter. Sequentially, the net profit declined 28.1 per cent and revenues grew 1.6 per cent. On the other hand, markets gave a thumbs-up to TCS after it posted double-digit revenue growth in dollar terms in Q4 for the first time in the last 12 quarters. The IT major reported a sequential growth of 8.2 per cent in Q4FY18 revenues. The firm’s consolidated profit was at Rs 69.04 billion for the quarter ended March 2018, registering a 5.7 per cent growth compared to Rs 65.31 billion in previous quarter and 4.5 per cent growth over year-ago period. In constant currency terms, revenue of both Infosys and TCS grew 5.8 per cent and 6.7 per cent, respectively, in FY18. So, should you invest in the large-cap IT stocks at the current levels? Though analysts remain bullish on the sector, they caution against the sharp rally seen thus far in CY18 and the valuations at which some of these stocks trade. A time-wise correction is possible in the near-term in TCS (based on valuations), as well as in Infosys, Wipro and HCL Tech (subdued near-term operational outlook), experts suggest.

Harit Shah, research analyst at Reliance Securities, for instance, advises investors wait for 5- 10% correction before putting fresh money in these stocks. "TCS is likely to perform the best (operationally) in FY19 followed by HCL Technologies. We expect 11.7 per cent dollar revenue growth on the back of strong growth in emerging verticals, client investments in Digital and recovery in BFSI and retail verticals. Expect 10.9 per cent dollar revenue growth for HCL Tech in FY19, albeit aided majorly by acquisitions. Infosys and Wipro are expected to both record single digit revenue growth of 8.1 per cent and 6.5 per cent, respectively,” Shah says. For Gaurang Shah, head investment strategist at Geojit Financial Services, TCS remains the top pick in the IT sector followed by Infosys and HCL Tech. Wipro, on the other hand, he thinks, can’t deliver good returns going ahead based on its recent earnings performance. He expects a 15-20% return from blue-chip IT stocks in the coming three - four years. IT stocks outperformed the benchmark indices in April, rallying 8.8 per cent, as compared to a 3.4 per cent rise in the Nifty. Gains were led by Tata Consultancy Services (TCS). The stock rallied nearly 20 per cent in April 2018 and became the first Indian IT company to scale $100 billion market capitalisation (market-cap) mark. Infosys, India's second-largest software services firm soared 5.72 per cent and HCL Technologies (2 per cent) at the bourses, ACE Equity data show. Among the mid-cap IT stocks, Shah of Geojit expects NIIT Tech to outdo large-cap peers in FY19 in terms of operational and stock market performance. "NIIT Tech can deliver 20-25% return for investors in the next three - four years," he says.

MONTHLY STAR

Business Standard Digital

Business Standard Digital Monthly Subscription
149.00  
subscribe
Complete access to the premium product
Convenient – Pay as you go
Pay using Master/Visa Credit Card & ICICI VISA Debit Card
Auto renewed (subject to your card issuer’s permission)
Cancel any time in the future
Requires personal information

What you get?

ON BUSINESS STANDARD DIGITAL

  • Unlimited access to all the content on any device through browser or app.
  • Exclusive content, features, opinions and comment – hand-picked by our editors, just for you.
  • Pick 5 of your favourite companies. Get a daily email with all the news updates on them.
  • Track the industry of your choice with a daily newsletter specific to that industry.
  • Stay on top of your investments. Track stock prices in your portfolio.
  • 18 years of archival data.

NOTE :

  • The product is a monthly auto renewal product.
  • Cancellation Policy: You can cancel any time in the future without assigning any reasons, but 48 hours prior to your card being charged for renewal. We do not offer any refunds.
  • To cancel, communicate from your registered email id and send the email with the cancellation request to assist@bsmail.in. Include your contact number for speedy action. Requests mailed to any other ID will not be acknowledged or actioned upon.

SMART MONTHLY

Business Standard Digital

Business Standard Digital - 12 Months
1499.00
subscribe
Get 12 months of Business Standard digital access
Single Seamless Sign-up to Business Standard Digital
Convenient - Once a year payment
Pay using an instrument of your choice - Credit/Debit Cards, Net Banking, Payment Wallets accepted
Exclusive Invite to select Business Standard events

What you get

ON BUSINESS STANDARD DIGITAL

  • Unlimited access to all content on any device through browser or app.
  • Exclusive content, features, opinions and comment – hand-picked by our editors, just for you.
  • Pick 5 of your favourite companies. Get a daily email with all the news updates on them.
  • Track the industry of your choice with a daily newsletter specific to that industry.
  • Stay on top of your investments. Track stock prices in your portfolio.

NOTE :

  • This product is a monthly auto renewal product.
  • Cancellation Policy: You can cancel any time in the future without assigning any reasons, but 48 hours prior to your card being charged for renewal. We do not offer any refunds.
  • To cancel, communicate from your registered email id and send the mail with the request to assist@bsmail.in. Include your contact number for easy reference. Requests mailed to any other ID will not be acknowledged or actioned upon.
First Published: Fri, June 08 2018. 12:12 IST
RECOMMENDED FOR YOU