India's TCS skids on demand recovery worries after Q2 revenue miss


FILE PHOTO: A private security guard stands at the exit gate of the headquarters of Tata Consultancy Services (TCS) in Mumbai, India October 13, 2016. REUTERS/Shailesh Andrade/File Photo

BENGALURU (Reuters) - Shares of India's Tata Consultancy Services fell as much as 1.8% on Thursday, as investors worried that a recovery in demand was still not within reach after second-quarter revenue missed estimates due to weak client spending.

The poor results and commentary from India's largest IT services provider took the shine off TCS' $2 billion share buyback announcement, and also slammed shares of peers.

The Nifty IT index dropped 1% on Thursday, with Infosys and HCLTech - both scheduled to report results later in the day - falling about 1% each.

TCS' revenue rose 7.9% to 596.92 billion rupees ($7.18 billion) in the September quarter, it said after market hours on Wednesday, but fell short of the analysts' estimates of 602.44 billion rupees.

"Broad-based revenue weakness and sharp headcount decline in the second quarter along with muted hiring outlook suggest that demand recovery is not yet in sight," Jefferies analysts wrote in a note, cutting their fiscal 2024 revenue growth forecast by 70 basis points to 4.3%.

Employee headcount at TCS declined by 6,333 during the quarter.

Jefferies, however, added that large deal wins were likely to lead to better growth in the second half of the year.

The company's profit marginally beat estimates due to higher margins.

Still, Nomura analysts said that weak growth, limited scope to lower subcontract expenses and a return to office for TCS' entire staff would limit margin improvement in the current fiscal year.

In the post-earnings press conference, TCS also hinted that there was no clear picture of when discretionary spends will return.

The company's results set the tone for a $245 billion-industry that is staring at an uncertain demand environment in the key U.S. and European markets, amid inflationary pressures and high interest rates.

TCS shares are currently down 1.5%, bringing year-to-date gains to 11.4%, compared with the IT index's 13% rise this year.

(Reporting by Ashna Teresa Britto; Editing by Janane Venkatraman)

Follow us on our official WhatsApp channel for breaking news alerts and key updates!

   

Next In Tech News

TikTok's rise from fun app to US security concern
Musk, president? Trump says 'not happening'
Jeff Bezos says most people should take more risks. Here’s the science that proves he’s right
Bluesky finds with growth comes growing pains – and bots
How tech created a ‘recipe for loneliness’
How data shared in the cloud is aiding snow removal
Trump appoints Bo Hines to presidential council on digital assets
Do you have a friend in AI?
Japan's antitrust watchdog to find Google violated law in search case, Nikkei reports
Is tech industry already on cusp of artificial intelligence slowdown?

Others Also Read