BSE IT index hits record high on strong Q1 show by Infosys, L&T Infotech

Infosys, TCS, HCL Technologies and Larsen & Toubro Infotech from the BSE IT index hit their respective record highs today

The S&P BSE Information Technology (IT) index hit an all-time high of 17,531, ralling nearly 6 per cent on the BSE on Thursday, after sector majors Infosys and Wipro reported better-than-expected earnings for the quarter ended June 2020 (Q1FY21).

The IT index surpassed its previous high of 16,586 recorded on February 19, 2020. In comparison, the S&P BSE Sensex was up 0.13 per cent at 36,098 points at 09:34 am.

Infosys, Tata Consultancy Services (TCS), HCL Technologies and Larsen & Toubro Infotech from the BSE IT index have hit their respective record highs, while Persistent Systems and Mphasis hit 52-week highs today.

Individually, Infosys rallied 13 per cent to Rs 936 today extending its Wednesday’s 6 per cent surge after the company reported a healthy margin expansion in Q1FY21. In terms of margins, EBIT (earnings before interest, tax) margins improved 149 bps to 22.7 per cent. Meanwhile, the company’s large deal signings increased 5.5 per cent quarter on quarter (QoQ) to $1.74 billion. The company reported 2.4 per cent QoQ dip in dollar revenues, less than analysts' estimate of 5.5 per cent cut.

ICICI Securities expect the company to continue to report healthy growth in revenues in the coming quarters. "Further, digital acceleration, large deal wins, vendor consolidation and cost rationalisation remain key long term drivers. In addition, the company has maintained healthy cash flow generation and has a consistent dividend payout policy. Hence, we have a positive view on the stock,"it said.

Larsen & Toubro Infotech (LTI), too, hit a record high of Rs 2,308, up 5 per cent on the BSE after the company’s EBIT margins improved 70 bps to 17.4 per cent in Q1FY21, mainly due to absence of one-off expenses in the quarter, rupee depreciation and cost rationalisation.

Going forward, analysts at ICICI Securities expect the company to register an improvement in revenue growth mainly led by digital acceleration, strong niche in sub segments and ramp up in its large deal pipeline. In addition, the company is expected to register healthy growth in margins in coming years. Hence, they remain positive on the stock from a long-term perspective.

Wipro, on Tuesday, had too reported better-than-expected performance in Q1FY21 as its profitability improved despite contraction in revenues on a sequential basis. The company’s IT services EBIT margins came at 19 per cent in Q1FY21, led by higher utilisation, cost efficiency and rupee depreciation. Analysts, on an average, had expected margins of around 16.6 per cent for the quarter. IT service dollar revenues in constant currency declined 7.5 per cent QoQ, in line with analyst estimates.