Investors cheered Tata Consultancy Services (TCS) results and bonus announcements of for the fourth quarter. The company’s performance has reignited hopes of a rebound in the IT sector after the United States President, Donald Trump, has been showing least lenience in the grant of visas. Following the results for the March quarter, analysts from different brokerages have started viewing the strengths of the results and see that there are little downside risks from the current levels.
Improving Growth Outlook
A BloombergQuint report quoted CLSA as saying that TCS is witnessing improving growth outlook in respect of big deal wins apart from improvement in revenues. The brokerage sees a potential recovery in the American banking and financial services to help the firm’s results. As a result, the CLSA lifted one percentage point in its revenue and earnings per share estimation for the financial year 2019 – 20. Most of the analysts see the company gaining from the recovery in the core banking and financial sectors in the upcoming years.
Aside from that, the brokerage pointed out increasing participation in big digital implementation projects helping the IT Company to post stronger results. CLSA also noted the bottoming out of BFS insourcing, as well as, strong preferred relationships to take advantage of the growth trajectory. Following the results and bonus announcements, Tata Consultancy Services (TCS) share was the biggest gainer with 6.98 percent at the NSE and led the IT segment. Similarly, the stock jumped 6.76 percent in the BSE.
The interesting aspect is that the company has acknowledged that the stress in the segment is showing signs of dropping. During a conference after the results announcement, its Tata Consultancy Services (TCS) CEO, Rajesh Gopinathan, said that “Incrementally, we are now more confident about BFSI North American than we have been in the past.” HSBC and IDBI Capital think that the company is most likely to report double-digit growth in the current financial year of 2018-19.
HSBC in its note to the clients stated that the results demonstrated a good exit rate apart from strong deal wins and picked up in the digital vertical. Aside from that, the management is more confident in the revival of the banking sector. All these things fit well for the company to deliver double-digit growth. Despite these favorable catalysts, the brokerage thinks that upside to the stock price is restricted due to the recent rally.
Not Everyone Is Bullish
Investors cheered the results. However, Motilal Oswal was not that gung-ho in its research note. The brokerage pointed out that the recovery in BFS appears to be not a concrete one though the company might believe that it has bottomed out in retail. The brokerage also thinks that 26 percent margin target is not an easy task for a full year and looks to be a daunting one.
Similarly, Nomura thinks that there should be one more quarter results to get clarity on BFSI. The financial firm thinks that EBIT margin to moderate approximately 1.1 percentage points to 23.7 percent by financial year ended 2019-20. On the other hand, Edelweiss does not expect any downside pressure on the stock price while expecting double-digit revenue growth as a definite possibility.