TCS share price hits all-time high ahead of Q2 earnings

Share of Tata Consultancy Services (TCS) hit a new 52-week high of Rs 2761 on Wednesday as the IT major starts earnings season for the July-September quarter today, declaring its Q2 numbers.

As per market expectations, TCS' revenue is expected 2.1% QoQ higher at Rs 39,133 crore, led by the ramp-up of large deals signed earlier and conversion of strong order wins. Meanwhile, its net profit is seen 13.4% higher at Rs 7.946 crore. Experts have placed EBIT 5.3% higher at Rs 9,532 crore and EBITDA margin at 24.4% from 23.6%, on a sequential basis.

Tata Consultancy Services (TCS) share today gained mere 0.16% to touch a new 52 week and an all-time high of Rs 2761 on BSE, over its last closing of Rs 2,716.15 on BSE. The stock opened at Rs 2,738 and also touched an intraday low of Rs 2,703 during the session.

Currently, TCS stock price is trading higher than 5, 20, 50, 100 and 200-day moving averages. TCS share price has risen 9.2% in one week, 126% in one month and 25% since the beginning of the year.

Market capitalisation of the large-cap stock, that crossed 10 lakh crore mark on Monday, traded today at Rs 10,21,492.93 crore. The IT giant has become the second company to cross the market capitalisation of Rs 10 lakh crore followed by Reliance Industries (RIL).  

Moreover, investors turned bouyed on the stock after the announcement that the board of TCS plans consider a share buyback proposal on October 7, the company said in a regulatory filing on Sunday. The company, however, did not disclose further details of the buyback plan.

"The board of directors will consider a proposal for buyback of equity shares of the company, at its meeting to be held on October 7, 2020," TCS, India's second most valued firm, said in a filing to the BSE.

Market analysts said investors turned buoyed as the share buyback as a positive move as it will reassure shareholders' confidence in the company. With demand normalising to pre-COVID-19 levels on the back of relaxations in virus indices lockdown, many market analysts are expecting margins to be resilient this season.

Brokerage CLSA is bullish on major names in the information technology sector and also advised investors to focus on quality stocks with a strong order book. Nomura has also reiterated a positive stance on IT sector. The global market research company raised target price, led by higher EPS and target multiples, in top Buys such as Infosys, HCL Tech and Tech Mahindra, although retained Neutral rating on TCS.

"Acceleration in IT spending led by a shift to Digital coupled with outsourcing push to drive growth for Indian IT," it added later.

Other earnings from the IT sector will be declared by Wipro, Infosys and HCL Tech on October 13, 14 and 16, respectively.

The market rally since Monday has been driven by IT and financials, as investors rushed to index heavyweights like HDFC twins, TCS, RIL, Infosys and ICICI Bank. Investors, as well as brokerages, are betting big on IT firms ahead of the results for the September-ended quarter.

Vinod Nair, Head of Research at Geojit Financial Services said, "Market is booming to a new level in anticipation of better Q2FY21 results, a clear improvement in domestic economic data and uptick in the global market. The IT and banking sector will be in focus, in the coming weeks, in expectation of real benefit in Q2 result. Banks are showing healthy deposits & advance growth, with signs of recovery in growth to pre-Covid level, while positive SC verdict is also expected next week regarding moratorium."

Motilal Oswal said in its note,"Technology sector is trading at a P/E of 22.6x, at 32% premium to its historical average of 17.1x. Despite the COVID-19 disruption, IT has seen (a) limited impact on revenue, (b) strong deal signings, and (c) closure of certain marquee deals. This is a key positive for Indian IT firms and further solidifies our expectations of a better outlook for FY22."

IDBI Capital said in its note, "The BSE IT sector (31%) has significantly outperformed BSE SENSEX (9.2%). Amid the pandemic, the IT sector has seen good pick-up in demand for digital solutions resulting in improvement in growth outlook for most of the companies within the sector. This has reiterated sectors ability of dealing with headwinds which coupled with strong FCF profile/payouts and corporate governance has resulted in re-rating of the sector."

The brokargae expects TCS to outperform with a strong improvement and said," We forecast Tata Consultancy Services (TCS) to report the best improvement in EBIT margin (185bps QoQ to 25.5%). We expect revival in revenue growth to support TCS's world-class ability to manage profitability."

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