TCS share price top Sensex loser; why TCS stock is falling despite 15% rise in net profit

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Updated: April 13, 2021 3:54 PM

IT stocks such as TCS, Infosys, HCL Technologies and Tech Mahindra fell up to 4 per cent on BSE on Tuesday.

TCS, tata consultancy services, infosys, HCL technologiesAnalysts believe that today's fall in IT shares offers a good opportunity for the investors to make a re-entry

IT stocks such as TCS, Infosys, HCL Technologies and Tech Mahindra fell up to 4 per cent on BSE on Tuesday. Tata Consultancy Services share price fell as much as 5.14 per cent intraday to Rs 3,074.55 apiece and was the top BSE Sensex dragger on the back of profit-booking a day after it posted a 15 per cent on-year rise in net profit to Rs 9,246 crore in the January-March quarter. Research brokerage firms and analysts have mixed response to TCS Q4 results. Analysts at ICICI Securities have downgraded TCS stock to ‘hold’ from ‘add’ as they believe that industry growth is unlikely to witness a meaningful acceleration (vs pre-Covid) over the medium term as is expected by the street.

Nifty IT index was the top sectoral loser, down 3.34 per cent weighed down by losses in Coforge, which was down 7 per cent. Other IT stocks such as Mindtree, TCS, Tech Mahindra, Infosys, Wipro were down in the range of 1.5-4.4 per cent. Technology stocks had run up sharply in anticipation of strong results. “However, further performance required a strong earning beat combined with above expectation growth outlook,” Investment advisor Sandip Sabharwal told Financial Express Online. Sabharwal added that the outlook seems decent but valuations are stretched. “At such a price, timewise correction is imminent,” he added.

TCS’ board of directors have also recommended a final dividend of Rs 15 per share. In the previous three quarters, the company has given interim dividends of Rs 5 per share, Rs 12 per share, and Rs 6 per share. The total dividend given by TCS in FY21 now stands at Rs 38 per share. “The main reason which seems to be ailing the IT sector as of now is the weak USDINR pair as it settled 32 paise lower on Monday, which has a potential risk of wiping out the earnings of from foreign revenues of such IT firms,” Vishal Balabhadruni, Senior Research Analyst at CapitalVia Global Research, told Financial Express.

What should you do with TCS stock now?

Analysts believe that today’s fall in IT shares offers a good opportunity for the investors to make a re-entry. IT stocks are witnessing profit booking post-TCS results, with profits marginally below analysts expectations. “Overall, with IT stocks till recently, hitting record highs, a healthy correction is always welcome, as it at the same time, offers opportunities for re-entry,” Aamar Deo Singh, Head Advisory at Angel Broking, told Financial Express Online. So far in the trade, a total of 1.09 lakh shares have traded on BSE, while 38.56 lakh shares have exchanged hands on NSE, so far.

Those at Kotak Institutional Equities have maintained a ‘reduce’ rating to the TCS stock due to its expensive valuations. ” At 27.4X FY2023E, the upside is limited,” it added. While Macquarie has an ‘outperform’ rating to TCS stock, with a target price of Rs 3,640, a 17.4 per cent rally from today’s low.

(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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