Tech stocks zoom despite tough times ahead as TCS meets street estimates

• TCS gained over 2% in early morning trade on Thursday as analysts expressed satisfaction with the cost efficiencies it has delivered in Q1.
• Infosys, LTIMindtree and even Wipro, which will announce its earnings later in the day, are trading in the green.
• HCL Tech Q1 earnings were below estimates due to underperformance in telecom, tech and engineering R&D verticals.

Almost all the top tier IT stocks were trading in the green in Thursday early morning trade after TCS’s first quarter performance met analyst expectations. The IT bellwether reported a flat growth in constant currency revenues when compared to the previous quarter (Q4FY23).

India’s largest IT company said that there is softness in the IT market due to macroeconomic conditions, but does not see any large scale cancellations.

The commentary seems to be comforting the markets, as even Infosys, LTIMindtree and even Wipro which is expected to announce its earnings today, was trading in the green along with TCS which gained by 2.5% in the morning trade.

“We continue to expect TCS to deliver superior growth in the near term among our Tier 1 coverage on account of its leadership in cost efficiency projects, which has resulted in strong inflows over the last two quarters. We factor in a USD revenue CAGR of 10.7% over FY23-25,” said an early morning update by Motilal Oswal.

Motilal Oswal also says that the company has been able to deliver on cost efficiency, which resulted in strong inflows for the last two quarters. “We expect the trend to continue, providing better visibility for FY25 revenue growth despite an uncertain demand,” it adds.

The BSE IT index went up by 1.9% in morning trade, as of 10:12 am.

Morning gains in IT stocks
Source: BSE

HCL Tech trades flat on account of disappointing results

HCL Tech is the only outlier whose stock traded flat after it reported a 1.3% drop in constant currency revenues for the quarter, sequentially. This is due to continued ramp-downs in telecom and technology verticals, mainly in engineering R&D which saw 5.2% decline sequentially in constant currency terms.

The company however maintained its revenue guidance for the financial year, at 6-8% YoY in growth in constant currency revenues.

“It (the management) is confident about the guidance in anticipation of fast scale-up of large deals in IT services and a rebound in ER&D business in Q2. But we see elevated risk to HCLT’s growth guidance on account of the steep ask rate over the next three quarters, and hence our estimates are 30bp below (at 5.7% YoY CC) the lower end of the management’s guidance band,” said Motilal Oswal.