As expected, TCS did set the mood.
The bellwether IT company, acting like a precursor for the performance of the sector in Q3FY21, posted a very encouraging set of earnings, beating all expectations, posting the strongest quarterly performance in nine years.
A quick look at its Q3FY21 earnings: (QoQ)
- Revenue up 5% at Rs.42015 crore
- US$ revenue up 5% at $5702 million
- Constant currency revenue up 4%
- Net profit at Rs.8701 crore, up 16%
- EBIT up 6% at Rs.11,184 crore
- Operating margin at 26.6%, up 40 bps.
- Net margin down from 21% to 20.7%
- Cash flow from operations at 137% of net profit
- Net addition of 15,721 associates, closing headcount: 469,261
- LTM attrition at an all-time low 7.6% in IT Services
Growth by geography: (QoQ)
- North America – up 3%
- UK – up 4.5%
- Europe – up 2.5%
- India – up 18%
- Middle East & Asia (MEA) – up 6.7%
- Latin America – up 3.1%
- Asia Pacific – up 2.6%
Growth in verticals: (QoQ)
- BFSI – up 2%
- Retail – up 3%
- Life Sciences & healthcare – up 5%
- Tech & services – up 0.8%
- Manufacturing – up 7%
- Communications & Media – up 5.5%
TCS does not give any guidance but in an interaction with the media, the CEO Rajesh Gopinathan, said, “We are very confident that we should be able to get back to our aspirational double-digit growth trajectory.”
This performance of TCS has set the expectations that the numbers from the sector for Q3 will be good. Under normal circumstances, Q3 is seasonally weak but this time around, the signs of demand picking-up post the first wave of Covid has made Q3 exceptionally good. Healthy order pipeline and large deals have become the hallmark.
There is also the expectation of Biden increasing the H1B visa limits, reversing Trump administration's policies after he takes oath on 20th Jan. This too will go in favour the India IT sector and stocks are bound to dance higher to these tunes of Biden.
Infosys and Wipro will be declaring their performance on 13th Jan and HCLTech on 15th Jan. And it is earnings which will more or less set the mood till the market gets into the “Budget groove.”