TCS Market Capitalisation Reduced by 20,000 crore rupees, Outlook Remains Cautious

Market capitalisation of Tata Consultancy Services (TCS) reduced by ₹20,000 crore in a single day as traders sold its shares heavily after the company's quarterly results showed that its earnings were adversely hit by currency swings.

Worse-than-expected results saw TCS shares sliding by 4.22 percent on Friday, posting its biggest loss in six months. The stock closed at ₹2,476 on the Bombay Stock Exchange (BSE).

Analysts now remain cautious over the outlook for the Mumbai-based company, while some brokerages revised their price target of the stock.

"We have revised our price target downwards to Rs 2,550 from Rs 2,700. We expect dollar-denominated earnings growth for FY16 to be slower and wage hikes and forex to be a drag on margins," Rumit Dugar, analyst at Religare, to The Economic Times.

"We think earnings downgrade risks are likely to weigh on valuations," he added.

Missing analysts' estimates for the third straight quarter, dollar-denominated revenues of India's largest software firm declined by 0.8 percent to $3,900 million in the January-March quarter, while in rupee terms it fell by 1.1 per cent to ₹24,219.8 crore.

"Risks of growth slowdown, increasing competitive intensity, lack of incremental margin levers and currency headwinds are for the entire sector, with TCS equally exposed despite its sector leadership. We expect a modest correction on the back of these soft results," Jefferies said in a note to moneycontrol.com.

Cross currency movements have been hurting TCS revenues for the past two quarters, as a strong dollar remains a drag on its income from others countries.

Investors are concerned over future growth momentum at TCS as the business from key verticals such as telecom, energy and insurance weakened in the quarter. The management also remain mute over the outlook for the three sectors.

Analysts say that revenue loss from the above-mentioned three sectors would mean that the company's FY16 growth will be lower than 15 percent, recorded in fiscal year 2014-15.

"We remain concerned about IT spending in 2015 and worry that the broad-based slowdown seen in TCS could be an early indicator of an industry-wide trend," said UBS analyst Diviya Nagarajan.

Traders now turned negative over the company's outlook and started opening short positions in IT shares, following the disappointing TCS earnings.

"Shares of IT companies such as TCS, Infosys, Wipro have seen fresh build-up of short positions, while liquidation of long positions are also being witnessed in this space," said Chandan Taparia, derivative analyst at Anand Rathi Securities.