Explainer: Why HCL Tech, TCS are not market heroes despite good results

Shares of IT stocks Tata Consultancy Services and HCL Tech were down in trade this morning on profit booking even as the two companies posted better than expected earnings for the quarter ended September 30, 2013.

Analysts were expecting the stocks to rally this morning due to the stellar results by HCL Tech and Tata Consultancy Services.

However, since traders had been accumulating the stocks ahead of the results in anticipation of the robust results, it seems they are now off-loading their long position after the sharp rise in stock prices.

At 10.16 am, Shares of HCL Tech were down 2.10 percent at Rs 1136. even asconsolidated quarterly net profit stood at Rs 1416 crore, up 14 percent sequentially and up 31.2 percent year-on-year. Consolidated revenues grew 14 percent quarter-on-quarter to Rs 7,961 crore. TheSeptember quarter numbers testified to the improved business environment for the sector, with net profit and operating margins exceeding analyst estimates. Revenues, however, just about met expectations. The stock rallied 10 percent in pre-opening trade after the company announced the results.

Tata Consultancy Services, India’s number one IT services exporter, was down 2.62 percent even as analysts at top global brokerage firms raised their respective target prices after the IT major reported a stellar Q2, supported by strong management commentary which remains exuberant on the growth prospects going ahead.Beating market expectations, Tata Consultancy Services reported a Profit After tax (PAT) of Rs 4,702 crore as against Rs 3,796.2 crore in Q1. This is a rise of 24.7 per cent quarter-on-quarter.

In the last one month,both these stocks had outperformed the market by surging 16% each compared to 4% rise in benchmark index and 14% gain in IT index.

In fact TCS has gained over 36 percent in the last three months and over 70 percent so far in the year 2013. And ahead of the results, the company’s shares traded at an all-time high of Rs 2,259 on the National Stock Exchange before settling 0.15 percent higher at Rs 2,216.

Other IT stocks also fell: Tech Mahindra Ltd was down 1.7 percent, while Infosys fell 0.9 percent.

Satish Ramanathan of Independent Market Analyst has advised investors to buy IT stocks on correction.

“As the rupee crossed 65/USD, it is well possible that the rupee goes below 60/USD as well and at that point in time IT names could take a correction which is the time that we should be looking into IT names,” he said in an interview with CNBC-TV18.