IT stocks gain post TCS decent Q1 results; Mphasis, Sonata rally up to 6%

IT stocks today: TCS, Mphasis, Accelya Solutions India, Sonata Software, and Kellton Tech Solutions rose in the range of 3 per cent to 6 per cent

IT stocks today after TCS Q1 FY25 results: Shares of information technology (IT) companies rallied up to 6 per cent on the National Stock Exchange (NSE) in Friday's intraday trade after industry giant Tata Consultancy Services (TCS) reported a decent set of numbers for the quarter ended June 2024 (Q1 FY25).

TCS, Mphasis, Accelya Solutions India, Sonata Software, and Kellton Tech Solutions were up in the range of 3 per cent to 6 per cent. Infosys, Wipro, LTI Mindtree, Coforge, Cyient, and L&T Technology Services, meanwhile, were trading higher between 1 per cent and 2.5 per cent. By comparison, the Nifty IT index was up 1.6 per cent and the Nifty50 index was up 0.41 per cent at 09:32 AM.

 

India's largest IT services company TCS marginally beat Bloomberg estimates for Q1 of FY25 as its net profit grew 8.7 per cent year-on-year (YoY) to Rs 12,040 crore, but fell 3.1 per cent sequentially. Revenue increased 5.4 per cent Y-o-Y and 2.2 per cent sequentially to Rs 62,613 crore. Bloomberg had estimated revenue to be at Rs 62,128 crore and profit at Rs 11,959 crore.

TCS' decent earnings came despite continued uncertainty with no material change in the market sentiment and overall outlook from the previous quarter. The management, however, reiterated that growth in FY25 will be better than FY24 growth of around 4 per cent and remained committed to the 26-28 per cent aspirational margin band.

Key triggers to aid margin growth in the short term would be pyramid, utilisation and productivity, while focus would be on pricing and growth acceleration in the medium to long term, ICICI Securities said in a note.

Given its size, order book, and exposure to long-duration orders and portfolio, TCS is well positioned to withstand the lukewarm macro environment. Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios, Motilal Oswal Financial Services said in its result update.

Meanwhile, HCL Technologies will announce its Q1FY25 results today, post-closing of the stock markets. Infosys will announce the first quarter results on July 18, 2024, while Wipro will announce Q1 FY25 results on July 19, 2024.

Analysts at Kotak Institutional Equities forecast moderate growth rate improvement across most companies under its coverage, led by seasonal strength, large deal ramp-up, and reducing intensity of cuts in discretionary programs.

The earnings before interest and tax (Ebit) margin performance will vary sequentially based on wage revision, but on a Y-o-Y basis it will be steady or increasing for many.

Analysts at Emkay Global Financial Services believe the start of an interest rate-cut can potentially act as a trigger for clients to re-initiate their spending cycles, thus driving higher discretionary spending. Despite the recent rally over the last week, the Nifty IT has underperformed the broader market in the last three months, due to delay in demand recovery.

"Guidance from both, Indian as well as global companies, also reflects weakness in the near term. Uncertainty around the inflation trajectory continues to weigh on client decision-making and revival in discretionary spending, with a full-fledged demand recovery now expected only in CY25/FY26. If the current rate-cut expectations materialize (51 per cent probability of a rate cut in the Fed’s September meeting), earnings downgrade can bottom out by H1FY25," the brokerage firm had said in an IT sector update.