Infosys shares fall, TCS stock up ahead of Q3 results. Here's why

Shares of Infosys Ltd and Tata Consultancy Services Ltd were trading in opposite direction in Thursday's trade ahead of the two IT firms' December quarter results. While the third quarter is seasonally weak for IT firms, Infosys results could be hit by two months of wage hikes. Analysts largely expect this IT firm to report 5-8 per cent year-on-year drop in profit for the quarter. In fact, if one were to go by Morgan Stanley, Infosys is among the companies that are expected to perform poorest among Sensex companies.

On year-on-year basis, Sharekhan sees Infosys logging 8 per cent fall in net profit. This brokerage sees TCS reporting 8.2 per cent jump in Q3 profit growth. While both Infosys and TCS are seen clocking a moderation in YoY profit margin, Infosys' YoY margin drop could be to the tune of 100 basis points, Sharekhan said. Sequentially, TCS may report improved margin. In terms of sales, Infosys is seen reporting flattish sales while TCS could report 3.2 per cent rise in revenue in rupee terms, Sharekhan said.

"TCS is expected to report muted revenue growth at 0.3 per cent in CC terms due to furloughs offset by the contributions from the BSNL deal. EBIT margins are likely to improve by 25 bps QoQ, aided by operating efficiencies partially offset by muted revenue growth," Sharekhan said adding that "Infosys is expected to report a revenue decline of 1.8 per cent in CC terms due to discretionary spend cuts and furloughs, with 20 basis points cross-currency headwinds. EBIT margins are likely to decline by 95 basis points QoQ due to wage hike and weaker revenues.

Shares of Infosys were trading 1.49 per cent lower at Rs 1,497. TCS was up 0.91 per cent at Rs 3,747.40. The BSE IT index was down 0.23 per cent in an otherwise strong day for the market.

For TCS, YES Securities sees profit rising 7.1 per cent YoY to Rs 11,620 crore on 3.1 per cent YoY rise in sales at Rs 60,323 crore. PhillipCapital sees Infosys profit falling 5.3 per cent to Rs 6,239 crore. Axis Securities expects TCS to report 6.6 per cent YoY rise in net profit at Rs 11,561 crore on 4.1 per cent rise in revenue at Rs 60,594 crore. It sees Infosys logging 7.6 per cent YoY fall in profit at Rs 6,087 crore on 1.4 per cent rise in sales at Rs 38,844 crore.

"We ascribe the IT sector’s weak showing in FY24 to—what we call–a leaky bucket syndrome. Execution of new deals was pushed out while discretionary components of ongoing deals were put on hold—thereby leading to a sharp dichotomy between deal flow and revenue growth. Come FY25, we expect a large part of new deals awarded to get into the execution mode, followed by a gradual recovery in discretionary spends. We also expect growth revival in the Hitech segment, followed by retail and eventually BFSI—the same order in which they dipped (FIFO)," said Nuvama Institutional Equities.

Also read: Stock recommendations by analyst for January 11, 2024: GRSE, PNC Infratech & Just Dial

Also read: Top 5 stocks to watch on January 11, 2024: Infosys, TCS, HDFC AMC and more