The dismal performance of Tata Consultancy ServicesBSE 1.61 % (TCS) in the September 2016 quarter and a second downward revision in the FY17 revenue guidance by InfosysBSE -2.34 % may prompt investors to wait before making fresh investments in these counters. In the short term, headwinds of cross-currency movements and slowing traction in key verticals of banking, financial services, and insurance (BFSI) and retail are expected to
curtail growth momentum.
While this is true, investors with long-term horizon may want to seek opportunities to pick up stocks at lower valuations considering a sustained flow of client additions, improving operating efficiency and stabilising trend in employee attrition. Such investors may find Infosys more attractive given the relatively better revenue growth in the past few quarters and cheaper stock valuation.
The year-on-year comparison of the quarterly dollar-denominated revenue shows that Infosys has started to do better than its biggest peer, TCS.
September 2016 was the fifth consecutive quarter when Infosys reported a better year-on-year growth in dollar-denominated revenue than TCS. Between March 2009 and June 2015, revenue growth of Infosys had lagged that of TCS in each of the quarters.
In the September 2016 quarter, revenue of Infosys grew 8.2% year-on-year to $2,587 million compared with 5.2% growth posted by TCS with $4,374 million. Even on sequential basis, with 3.4% growth, Infosys fared better than TCS which posted a modest 0.3% increase.
Apart from revenue, Infosys beats analysts’ estimates of net profit and operating margin for the September quarter. The stock, however, fell on Friday after the company announced significant drop in its forecast for the fiscal. It now expects revenue to grow 8-9% excluding currency fluctuations. This is lower than the guidance of 10-12.5% growth it gave in July and much lower than 11.5-13.5% growth it had estimated at the beginning of the fiscal in April.
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