IT firms put up good show in seasonally weak quarter
Ravi Ranjan Prasad

The first flush of third quarter numbers from the IT sector companies is a mixed fare but not disappointing so far, given the October-December quarter is a seasonally weak quarter for the sector.

Last year, the IT sector’s performance in the October-December quarter led by Tata Consultancy Services had led to a bull run in the IT stocks, which helped them register impressive returns for the calendar year 2018. This time year to date return for the NSE IT Index is up over 3 per cent much better than Nifty-50 return of less than one per cent, while IT stocks are recovering from the recent correction seen in October-December 2018 period.

The first six IT companies reporting their third quarter results, TCS, Infosys, Wipro, L&T Infotech, Mindtree and NIIT Technologies, have reported more than 20 per cent revenue and profit growth year on-year but Infosys profit has fallen.

Q3 has traditionally been a seasonally weak quarter for the Indian IT services industry due to less number of working days and furloughs, said analysts.

Tata Consultancy Services revenue grew 27.53 per cent and profit grew by 23.34 per cent. For Infosys revenue grew by 20.39 per cent but profit fell by 5.32 per cent in rupee term. For Wipro consolidated revenue including consumer business grew 9.62 per cent and profit grew 39.57 per cent.

Rahul Jain, IT analyst, Emkay Global Financial Services said, “We prefer TCS over Infosys and maintain it as our overweight pick.”

“TCS Margins at 25.6 per cent, were down on negative cross-currency impact  compared to street expextations but increasing deal pipeline and encouraging commentary for the BFSI vertical in Q3 provide us visibility for a continuation in growth in the medium term,”Jain said.

Wipro rallied after higher profit and 1:3 bonus announcement but analysts are not impressed and expect the company to underperform in near term and are underweight on the stock.

Among the other large-cap names  L&T Infotech reported revenue growth of 31.04 per cent and profit growth of 35.69 per cent, have impressed the market  the most among the large-cap names along with TCS both stocks getting buy rating compared to reduce rating for Infosys and Wipro.

Among the tier II IT companies  Mindtree reported 32.96 per cent revenue growth and 22 per cent profit growth. NIIT Technologies also reported 26.45 per cent revenue growth and 20 per cent profit growth.

Analysts expect HCL Technologies, which is set to announce its October-December quarter financial performance on January 29, to top the growth charts among large cap players as Q3 is seasonally a strong quarter for select services offered by the company.