TCS, Infosys, Wipro shares hit new 52-week highs; outsourcing, IT spends to drive IT sector higher

IT stocks were in focus today as TCS, Wipro, Infosys, HCL Tech, L&T Infotech, Mindtree, Tech Mahindra and Coforge hit fresh 52-week highs on Thursday. In the previous session, Tata Consultancy Services reported a consolidated net profit of Rs 8,433 crore, an increase of 20.3 per cent sequentially. The IT company’s board also cleared a buyback plan of up to Rs 16,000 crore at Rs 3,000 per share and an interim dividend of Rs 12 per equity share, along with a salary hike for employees from October 1, 2020. TCS share price jumped over 5 per cent to Rs 2,875, while Wipro shares soared 5.5 per cent to scale a fresh 52-week of Rs 353.70 apiece. Besides, Nifty IT index too surged 4.36 per cent to new 52-week high level. Research and brokerage firm BOBCAPS has maintained a ‘buy’ rating to TCS with a target price of Rs 3,180 apiece, implying an upside of over 16 per cent from the previous close.

BOBCAPS said that the cloud and digital demand lead to an earlier than expected demand recovery. TCS benefited from the vendor consolidation exercise of clients. Management is confident of H2FY21 growth despite uncertainties and seasonal weakness of Q3. “TCS’ recent buyback is similar to its previous buyback of Rs 16,000 in FY18,” it said.

On Wednesday, IT major Wipro too announced to consider share buyback proposal in its board meeting scheduled to be held on October 13, along with its corporate results for the July-September quarter. Research firm Nomura said that acceleration in IT spending coupled with an increased push for outsourcing and benefits from market share gains will drive higher revenue growth across the IT sector. It has raised target multiples and revised target prices upwards across the board. Infosys followed by HCL Tech and Tech Mahindra are Nomura’s top buys. While it retained neutral rating to TCS and ‘reduce’ on Wipro.

Analysts at Motilal Oswal Financial Services said that TCS has a historical track record of adapting to multiple business challenges and technology change cycles. It has consistently maintained its market leadership, best-in-class operational metrics, and high return ratios. It noted that the commentary to defend margins in a narrow band going forward is another positive.”We expect the company to be relatively better positioned (v/s the sector) to navigate COVID-related challenges and benefit from the uptick in digital investments,” Motilal Oswal said in a report.