Infosys showing raises hopes from TCS, Wipro

MUMBAI: After Infosys exceeded market expectations about its first quarter results, investors are anticipating a similar show by other top rung IT exporters. The stocks of Tata Consulting Services (TCS), HCL Technologies, and Tech Mahindra have touched their all-time high levels since Friday, reflecting the market's high expectations.

The S&P BSE IT index has gained 14% in a month and of this, 9% was posted in the last week alone. TCS touched an all-time high of Rs 1,645 on BSE during the morning trade on Monday and so did HCL Tech (Rs 882.6), and Tech Mahindra (Rs 1,133).

TCS and HCL Tech are expected to report 6-6.5% revenue growth and 3-5% PAT growth in the rupee terms sequentially for the June 2013 quarter based on the average estimates by analysts. Will they be able to spring a surprise?

Both TCS and HCL Tech have been reporting a sustained growth over the past two years. The addition of large multi-year clients accounts has also continued even though discretionary projects are facing delays. The traction in client accounts, then, is largely on account of a spate of deal renewals.

Infosys reported seven large new accounts for the June quarter reflecting that Indian outsourcing firms are able to compete effectively with their multinational peers. TCS and HCL Tech are also expected to add large accounts given the depth of their offerings.

The sharp depreciation in the rupee will help in boosting the toplines of these companies. What could make the difference at the bottomline will be the foreign exchange hedging practices adopted by them. In that, TCS is likely to report higher exchange loss due to its strategy to take long-term hedges. This is likely to pull its net profitability down for the quarter.

Apart from the quarterly performance, the management commentary on the demand traction and trend in major markets would be crucial. While the stocks of these companies have been trading at all-time high levels, investors need to assess valuations after the announcement of results by these companies and their future prospects before making fresh investments. TCS will declare quarterly performance on July 18. HCL Tech and Tech Mahindra will declare results later during the results season.

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