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Stocks of major information technology companies are seen trading in a range next week following mixed Jan-Mar earnings and 2013-14 (Apr-Mar) outlooks delivered by three of the top companies in the sector. After Infosys' disappointing guidance last week, the market was eagerly waiting for the results of IT behemoth Tata Consultancy Services. TCS delivered results in line with market expectations but its outlook for the current financial year is seen as too optimistic. On Wednesday, TCS, the country's largest software exporter, posted a net profit of 35.97 bln rupees for Jan-Mar, up 1.3% sequentially, while net sales increased 2.2% to 164.30 bln rupees. TCS continues to excel with creditable performance at a time when peers are struggling. However, this may not be enough to drive absolute stock returns, especially in light of elevated expectations from TCS and challenges facing the industry.
The company's performance highlights the strength of execution but does not do enough to indicate a healthier spending environment. Modest growth in international business, decline in consulting revenues and weak performance/commentary of peers indicate that discretionary spending may not be as strong. The same day, HCL Technologies reported 7.8% quarter-on-quarter growth in consolidated net profit to 10.40 bln rupees, aided by foreign exchange gain and operational efficiencies. Consolidated revenue for the quarter was at 64.24 bln rupees, up 2.4% on quarter. That HCLT (HCL Technologies) has lower offshore pricing (16-18% lower than Infosys and Wipro), inefficient employee pyramid captured by delay in absorption of freshers, higher subcontracting costs and growth that is driven by relatively lower-margin infra management business, raises concerns on sustainability. Quarterly results of MindTree, to be announced Monday, will also be eyed.
