Stocks

TCS’ remarks over currency movements, earnings spook peer stocks as well

Our Bureau Mumbai | Updated on January 24, 2018

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IT stocks are likely to witness a near-term correction: analysts





Shares of top IT firms were under selling pressure on Monday after Tata Consultancy Services indicated that cross currency movements may adversely affect its earnings for the quarter ending March 31.

‘Sluggish Q4’

A few brokerages have downgraded the TCS scrip, thereby contributing to the selling pressure.

The TCS scrip hit an intraday low of ₹2,611.8 on the BSE, before closing at ₹2,643.15, down 1.97 per cent from Friday’s closing price. The S&P BSE IT index shed 245.71 points to end the day at 11,706.71, down 2.06 per cent.

In a conference call with analysts on Thursday, Chief Financial Officer Rajesh Gopinathan indicated that Q4 will be a sluggish quarter for the company. However, he said that the trend is in line with the same period last year.

“Currenty, we are likely to see a lot of volatility. We are likely to see a currency impact of almost negative 275 basis points, (constant currency to rupee revenue) and negative 200 basis points (constant currency to dollar revenue),” Gopinathan had said.

TCS has a high share of revenue from non-dollar currencies.

Since the dollar has appreciated against other global currencies, the impact is being felt on the company’s income and profits.

Moreover, TCS did not provide its outlook for fiscal 2016. TCS typically gives qualitative commentary for the next fiscal in Q4. Subsequently, Religare Institutional Research had downgraded the TCS stock to ‘Hold’ from its earlier ‘Buy’ rating.

In a report, Kotak Institutional Equities said: “The drag on revenue growth for the quarter is from the usual suspects — insurance (weakness across the board), Diligenta and the energy vertical. Telecom is muted.

More correction

Fourth quarter revenue growth will be influenced to some extent by revenue recognition in the India business, which tends to be lumpy and seasonally favourable in Q4.”

Industry watchers say that IT stocks are likely to witness a near-term correction unless new data points that suggest acceleration in revenue growth come to the fore.

“It should be noted that TCS has mentioned that the momentum at this point is turning out to be slightly slower-than-expected, something that is likely to adversely impact IT stocks,” Karvy Stock Broking said in a research report.

Bangalore-based MindTree said it expects to post a marginal fall in dollar revenue growth in Q4 due to continued depreciation of certain currencies against the dollar.

Top IT stocks have seen a 15-20 per cent rise since January, thanks to good Q3 results and expectations that revenue momentum would continue in fiscal 2016.



Published on March 09, 2015

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