Shares in Tata Consultancy Services soared more than 15 percent on Monday to their highest in more than a year after the outsourcer posted strong quarterly earnings and prompted a flurry of brokerage upgrades.
Analysts said the surprising strong performance by India’s top software services firm by sales helped dispel some gloom surrounding the $60 billion software and services sector.
Tata Consultancy beat expectations by posting a 22 percent rise in quarterly profit late on Friday, but said the business environment remained weak and there was pressure on fees due to the global economic downturn.
“TCS has continued to make long-term investments, the effect of which is partly visible in the current quarter’s performance despite a tough macro,” Viju George and Kunal Sangoi, analysts at brokerage Edelweiss, wrote in a report.
By 0627 GMT, shares in Tata Consultancy, which has a market value of more than $17 billion, was up 15.1 percent at 499.10 rupees after having risen 15.3 percent to their highest since June 2008. The main market was up 2 percent.
Edelweiss raised its earnings per share by 13 percent to 29.50 rupees for the full year to March, and forecast revenue to rise 7.4 percent.
Citigroup, which has a buy on the stock, increased its earnings per share target for this fiscal and next year by 8.7 percent and 5.9 percent respectively.
Brokerage Reliance Equities said better-than-expected results by Goldman Sachs, JPMorgan and Citigroup had raised hopes for a rise in IT spending, which would benefit Tata Consultancy that gets a bulk of its revenue from financial clients.
It raised its target price on the stock to 540 rupees from 453 rupees earlier.
After a scorching pace of growth for years, the export-led outsourcing sector has been battling a slowdown over the past year as top global customers struggled to stay afloat, went bust or tackled severe cost cuts, leaving little room to boost technology spending.
“In our view, the IT bellwethers are giving out cautious to challenging outlooks so as not to build up expectations too much,” analysts Shubham Majumder and Nitin Mohta wrote in a Macquarie research report.
“We believe that early signs of a recovery are visible and that the worst is behind us.”
Tata Consultancy had reported a fifth consecutive quarter of single digit year-on-year quarterly profit growth in April after seeing a rise of more than 20 percent in the previous quarters, while Infosys Technologies forecast its first annual sales drop this year.
Morgan Stanley said it remained concerned about risks to the sector’s earnings from uncertain macro environment that could lead to slower-than-expected recovery, stagnant technology spending by clients and incremental pricing pressure.
Shares in Infosys, which the market values at $22 billion, were trading up at 4.6 percent at 1,953.20 rupees and the No. 3 software services exporter Wipro was 11.3 percent up at 478.80 rupees. The sector index rose 6.6 percent.
Wipro reports April-June, its fiscal first quarter, earnings on Wednesday.
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