There are a plenty of reasons to love Tata Consultancy Services (TCS) but only one is enough for investors to favor Infosys over TCS - valuations.
According to Bloomberg, out of 50 analysts tracking TCS, eight have sell ratings while Infosys has six out of 52 analysts. TCS has 19 "buy" and 23 "hold" rating while Infosys has 37 "buy" and six "hold" ratings.
TCS' market capitalization reached the $100 billion mark on Monday, rising high above analysts' expectations of where its valuation should be.
The TCS stock now trades at 22.94 times one-year forward price-earnings (PE) while Infosys trades at 17.16 times of one-year PE.
Shares of TCS have surged over 30 percent so far this year, gaining nearly 8 percent in the last two trading sessions alone after its earnings announcement. The BSE IT index is up 20 percent in 2018 so far.
The rise in the TCS shares came after IT giant posted a rise of 4.5 percent in its fourth-quarter net profit. In constant currency terms, it managed a 5.8 percent growth, which was lower than industry body Nasscom's estimate of 7.8% growth last year.
An added factor was its bullish commentary while announcing its March quarter results, which has led some investors to believe that the company's growth will rise to double-digit levels this fiscal.
The country's largest software exporter also announced a bonus issue of 1:1 for its shareholders. The ratio of the bonus share offering shows that a shareholder of the company will receive one share for every share held.
Nomura finds valuations of TCS to be expensive at 20 times projected fiscal 2020 earnings and sees risk to street expectations of double-digit constant currency revenue growth and flattish margin. The brokerage firm has a cautious stance on the stock due to sluggishness in large segments, margin pressures and expensive valuations.