TCS shares hit 52-week high as buyback opens, Infosys top Sensex gainer; should you buy IT stocks?

Information Technology (IT) stocks were in focus today after Accenture reported strong first quarter results. The consulting and outsourcing services provider also raised its full-year sales forecast as an extended work-from-home period boosted its digital, cloud and security services. The company forecast fiscal year 2021 revenue growth between 4-6 per cent, above its previous estimate of growth between 2-5 per cent. In today’s trade, Nifty IT index scaled a new record high of 23,408, with Tata Consultancy Services (TCS) and Infosys hitting their respective record highs. According to an analyst, Accenture reported a solid 8 per cent on-year growth in outsourcing business which bodes well with large Indian IT companies.

Accenture also highlighted improvement in the demand environment which suggests continued medium term resiliency of technology demand. “Currently, Accenture trades at 10-25 per cent premium to larger Indian peers on consensus FY23 EPS which strengthens the case for continued premium valuation for IT companies,” Suyog Kulkarni Senior Research Analyst, Reliance Securities, told Financial Express Online.

TCS hits 52-week high as buyback offer opens

Tata Consultancy Services share price gained 2 per cent to hit a new 52-week high of Rs 2,892.75 apiece as the company’s Rs 16,000 crore share buyback offer opened today. Last month, TCS shareholders had approved a proposal to buy back up to 5.33 crore equity shares of the company at Rs 3,000 per scrip for an aggregate amount not exceeding Rs 16,000 crore. The share buy back offer will close on January 1, 2021. This is the third share buyback offer from the company in the last four years, the first two were for an aggregate amount of Rs 16,000 crore. In 2017, TCS bought shares at Rs 2,850 apiece, while in 2018, the IT firm bought back shares at Rs 2,100 apiece, both of which were at a premium to the stock price back then.

Abhijeet Ramachandran, Independent Analyst/ Co-Founder and Trainer at Tips2Trade, told Financial Express Online that TCS buyback offer is very attractive for short term investors as an exit at Rs 3000 is still handsome profits. “However, we believe long term investors should not opt for the buy back as TCS is poised to maintain its position as the top IT company in India even in the coming years. Price targets of 3550-4100 could be expected by FY22,” he added.

Should you bet on IT stocks?

Abhijeet Ramachandran said that after a phenomenal recovery in the banking and NBFC sector, it is not surprising to find IT doing well. Very low debt, strong operational efficiencies and hardly any impact of COVID-19 make it such a great sector to be invested in. “However, currently even Nifty IT seems overbought and the Dollar index being heavily oversold. Investors should wait for a slight dip of about 5-8% to buy the top IT stocks like TCS, Infosys for excellent returns going forward,” Ramachandran added.