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TCS Q1 nos a disappointment, Street positive on Infosys: Saurabh Jain

Aprajita Sharma/New Delhi 14 Jul 17 | 11:26 AM

TCS and Infosys kick started the Q1FY18 results season for the information technology sector. SAURABH JAIN, Associate Vice President - Research (Equity) SMC Global Securities tells Aprajita Sharma that the Street will turn positive on Infosys post its numbers. He also shares his market outlook for the rest of the year. Edited excerpts:

What are your takeaways from the Q1 results of Infosys and TCS?

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TCS results disappointed the Street as margins came lower, but the company has started broad-basing its client additions in the $10 million category. It added 10 clients in $10 million category in Q1. The company is also focusing on expanding its technology business as larger clients seek new technology for higher productivity.

With respect to Infosys, the results came better than expected. The company has strong position in the newer areas in technology and BFSI segment. Margins came better. While they maintained their sales growth guidance in constant currency terms, they raised their dollar revenue guidance to 7.1-9.1% from 6.1-8.1% earlier.

Do you expect Infosys to revise its FY18 guidance downwards in the next quarter?

I don’t think so. The body language of the management and the statement coming from them tells they are quite optimistic and confident about the company’s performance. I expect them to surprise street positively in the next quarter too. 

What is your outlook on the IT sector as a whole?

IT sector has been a laggard, but among them Infosys can become an outperformer, because TCS is a disappointment. Between TCS and Infosys, Street will prefer latter. As for other IT stocks, it is too early to formulate a view unless HCL Tech and Wipro comes out with their Q1 earnings.

As IT companies have not been performing well, do you expect consolidation in the IT sector?

I don’t think big IT companies would like to acquire smaller players as they are looking for opportunities abroad. They have started increasing local hiring in US. Since most of their revenues are coming from US, they would prefer organic growth by client additions over inorganic growth by merger and acquisitions. 

With valuations running higher, where do you see the market headed, going forward?  

With PE multiple running at 23-24, the market looks quite pricey to me. Many smallcap stocks and recent IPOs have done phenomenally well. These are concerning factors. With valuations at the higher side, I believe the Street has factored in earnings growth of more than a year. 

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