Info-tech

TCS surges to record after unveiling $2-bn buyback

Bloomberg | Updated on October 08, 2020 Published on October 08, 2020

Tata Consultancy Services Ltd surged to a record high after the Indian giant announced a share buyback of as much as ₹16,000 crore ($2.2 billion) and said technology spending was recovering faster than anticipated.

Asia’s largest software outsourcing provider reported a larger-than-expected 7 per cent fall in net income to ₹74,700 crore in the September quarter. But Chief Executive Officer Rajesh Gopinathan said IT budgets were bouncing back and growth should accelerate as clients spend on digital services such as cloud migration, security and work tools to trim costs and adjust to a post-pandemic environment.

Like Infosys Ltd and Wipro Ltd, TCS is struggling to serve global financial services giants and corporate clients after a nationwide lockdown forced hundreds of thousands of their employees to work from home. But spending is loosening as lockdowns ease globally and their customers build out their digital infrastructure. Shares of TCS gained as much as 5.2 per cent on Thursday, becoming the best performer on the benchmark Sensex, after brokerages including Dalal & Broacha and IDBI Capital raised their recommendations on the stock.

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“The recovery is happening a quarter earlier than we expected; it is sustainable and has strong legs,” Gopinathan said during a post-earnings briefing. “But we are not fully out of the woods and need to be careful on the economic and health fronts.”

What Bloomberg Intelligence Says

Tata Consultancy Services is poised to see growth recover over the next two-three quarters as discretionary IT spending rebounds, especially among banking clients. A boost in spending on digital transformations and a need to save more on their total IT costs will be the main drivers. Tata’s unique culture, brand and low attrition rate is a major differentiator compared with other rivals and could help it gain market share from companies such as IBM, which are struggling to show any growth.

- Anurag Rana and Gili Naftalovich, analysts

Longer term, India’s $181-billion tech outsourcing industry may have to deal with the unpredictability surrounding its US business, including a trend of increasing automation and difficulties obtaining visas for employees in the US, undermining a model that relies on sending thousands of people to work alongside clients overseas.

The Trump administration is narrowing the jobs that qualify for H-1B specialty occupation visas, part of what officials say are the most significant reforms to the program in 20 years. As many as a third of all H-1B petitions would likely be rejected under the new measures, officials estimate.

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Gopinathan said in Wednesday’s briefing that the company is still studying the changes but they won’t alter the way it works. “We are quite confident about our business model,” he said.

Shares of TCS, which spiked after it announced its buyback proposal, have gained more than 30 per cent this year, lagging Infosys’ roughly 50 per cent rise but well ahead of the benchmark Sensex Index’s decline.

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Published on October 08, 2020
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