TCS Q3 impact: Infosys, Wipro and HCL Tech drop ahead of quarterly earnings

A cautious commentary by the TCS management weighed on IT stocks, which fell ahead of their quarterly earnings later in the week. Infosys and HCL Technologies are scheduled to report their quarterly earnings on January 12 while Wipro is scheduled to report its December quarter numbers on January 13.

While shares of TCS fell 2.34 per cent to a low of Rs 3,242 on BSE, Infosys declined 1.46 per cent to Rs 1,460.10. HCL Tech declined 1.01 per cent to hit a low of Rs 1,056.80.  Wipro declined 0.6 per cent to Rs 389.35.

Lead indicators point towards a slowdown, said Kotak Institutional Equities. It noted that net headcount declined by 2,200 employees. Headcount addition stood at 10.3 per cent on YoY comparison against a constant currency revenue growth of 13.5 per cent and that TCS' order bookings grew a mere 2.6 per cent YoY to $7.8 billion.

Analysts said the management was watchful, considering heightened macro uncertainties. It though was confidence on accelerating revenue growth once uncertainties abate.

Nirmal Bang said the TCS management held out a more optimistic view on demand in the foreseeable future compared to its expectations. It said there is going to be a push-back on pricing, one moves into FY24 when macro conditions will be much more challenging than FY23.

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"Q3FY23 net headcount was lower by 2,200. Not entirely unexpected, but TCS says that it is not a leading indicator of weaker demand. Overall, we felt that TCS commentary was pointing to a high single-digit CC revenue growth in FY24 compared to the teen growth seen in both FY22/FY23 and seems to be implying a soft-landing macro situation in the US in 2023," it said as it anticipates revenue growth in the low-to-mid single digit, with margins not expanding in FY24 due to pricing pressure and normalisation of certain costs.

The IT firm had on Monday clocked a 11 per cent year-on-year (YoY) rise in net profit at Rs 10,846 crore for the December quarter compared with Rs 9,769 crore in the same quarter last year.  Revenue for the quarter climbed 19.10 per cent YoY to Rs 58,229 crore from Rs 48,885 crore in the corresponding quarter last year. On constant currency terms, revenues were up 13.5 per cent YoY.

Order book for the quarter came in at $7.8 billion, the IT major said, adding that book-to-bill stood at 1.1 times. Net headcount declined 2,197 while the total workforce strength stood at 6,13,974, TCS said.  In the last twelve months, IT Services attrition rate stood at 21.3 per cent, the IT major said on Monday.

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