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Informist, Thursday, Oct. 10, 2024

By Alina Geogy

MUMBAI – Gains in the benchmark indices may remain subdued Friday as investor sentiment is likely to have been dampened by the weaker-than-expected Jul-Sept earnings reported by information technology major Tata Consultancy Services, analysts said. Fears that more companies may report subdued earnings for the September quarter are likely to discourage investors in the near term, they said. Other factors such as the continuing outflows of foreign portfolio investors and expensive stock valuations may also weigh on the market.

Though the revenue reported by Tata Consultancy Services was marginally below the estimates of analysts, the company's margin performance came as a negative surprise, Sanjeev Hota, head of research at brokerage Sharekhan, said in a note. The total contract value of deal wins by the company was $8.6 billion, lower than expectations and below the average over eight quarters of $9.6 billion, he said.

Tata Consultancy detailed its results after market hours Thursday. Its consolidated net profit for Jul-Sept fell over 1% sequentially to INR 119.09 billion, lower than analysts' estimate of INR 125.14 billion. The decline in the bottom line came despite the company's revenue rising 2.6% on quarter to INR 624.59 billion. The stock closed 0.6% lower Thursday, failing to sustain initial gains. TCS has the seventh-highest weightage in the Nifty 50 index at nearly 4% as of Sept. 30.

The company's weak earnings, posted before other Nifty 50 constituents, may affect sentiment towards the entire IT sector. Given that the US Federal Reserve has stepped into an easing cycle and macroeconomic prints are stable, the narrative for a recovery by the sector in Oct-Mar and financial year 2025-26 (Apr-Mar) still holds true, Hota of Sharekhan said.

The Nifty IT index ended over 1% lower Thursday, among the worse-hit sectoral indices. All 10 constituents ended with losses and are expected to fall more in the next session.

Another Tata Group-owned information technology firm, Tata Elxsi, also reported its quarterly results Thursday. Its net profit for Jul-Sept rose 25% on quarter to INR 2.29 billion, slightly higher than the range of INR 2 billion-INR 2.23 billion expected by analysts.

With earnings season underway, stock-specific action is expected to pick up, Ajit Mishra, senior vice-president of research at Religare Broking, said in a note. Now, the outlook for the Nifty 50 points to a consolidation with a negative bias unless the 50-stock index decisively crosses 25300 points, he said.

On the downside, a drop below the recent low of 24700 points could lead to a further slide in the benchmark indices, Mishra said. On Thursday, the Nifty 50 closed marginally up at 24998.45 points. The BSE Sensex closed 0.2% higher at 81611.41 points.

Investors will now assess the weekly unemployment claims data from the US and the country's CPI data for September, due Thursday. They also await the Producer Price Index data for September from the world's largest economy, due Friday. All these data are expected to play a key role in shaping the Fed's monetary policy, Shrikant Chouhan, head of equity research at Kotak Securities, said in a note. A softer-than-expected CPI rise, forecast at 2.3%, could ease concerns about inflation, while jobless claims will provide insight into the health of the labour market, he said.  End

Edited by Rajeev Pai

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