Why Nifty IT index has jumped 5% today
The Nifty IT Index skyrocketed 5% on Friday, reaching a 52-week high. This sudden upsurge was triggered by impressive quarterly results from India's two top IT giants, Tata Consultancy Services (TCS) and Infosys. Infosys's share price jumped over 7%, while TCS climbed over 4%. The third quarter is generally a weak period for IT firms due to a shortage of work and fewer working days impacting their performance. Despite this, both companies reported earnings that met or exceeded analysts' predictions.
Infosys Q3 net profit down 7% but beats estimates
Infosys's Q3 FY24 revenue remained stagnant at Rs. 38,821 crore, representing a marginal 1.3% YoY growth, but still surpassed estimates. Earnings before interest and tax (EBIT) margins were at 20.5%, down 70bps sequentially but ahead of Jefferies's estimates. The firm's consolidated net profit of Rs. 6,106 crore marked a 7% decrease from the previous year but was better than expected. Infosys predicts revenue to increase between 1.5-2% by the end of March 2024, instead of the 1-2.5% range estimated earlier.
TCS's net profit growth also beat estimates
TCS posted Q3 revenue of Rs. 60,583 crore, a 4% increase sequentially, in line with Jefferies's estimates. EBIT margins rose by 70bps sequentially to 25%, slightly surpassing Jefferies's expectations and seen as a key positive surprise. Profits amounted to Rs. 11,097 crore, a 1.96% YoY growth, meeting estimates due to higher exceptional items related to legal settlements. Numama Research analysts commended TCS for its impressive revenue beat and exceptional margin performance.
Deal wins impacted by seasonality
TCS announced modest deal wins of $8.1 billion, 27.7% lower sequentially but up 3.8% YoY, with analysts attributing the results to seasonality. Management anticipates positive momentum in the BFSI vertical in Q4, a significant plus for the entire sector. Infosys' total contract value (TCV) of $3.2 billion was 57.8% lower sequentially and 1.8% lower YoY, but Nuvama analysts considered it modest due to higher furloughs and record deal wins in the previous quarter.
