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TCS or Infosys: Which is a better bet post Q2 results?

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Tata Consultancy Services (TCS) and Infosys have announced their respective September 2018 quarter results in the past few days. The numbers were aided by robust demand environment in BFSI and digital segments, a ramp-up in deal signings and rupee depreciation.  While TCS maintained its broad-based performance across the segments and geographies, Infosys made a good comeback after a weak June 2018 quarter. The company reported deal wins of over $2 billion, which was one of the highlights of Q2 results.

Here's a quick look at the companies' performance on different parameters.

Parameter     TCS YoY change (%)   Infosys YoY change (%)
PAT Rs 79.01 bn 23 41.10 bn 10
Revenue Rs 368.54 bn 20.7 206.09 bn 17
Operating Margin 26.50%  up 1.4% 23.70% down 2% YoY

Infosys or TCS, what to buy?

Though analysts remain bullish on the prospects of both the companies, they appear a little tilted towards Infosys at the current levels. Technically, too, Infosys enjoys an upper hand post the recent correction, they say.

“I think Infosys’ results are better because their growth has been faster than TCS. Large deal wins of more than 2 billion dollars, out of which, 1.2 billion being the fresh deal, is a big positive,” said AK Prabhakar, Head of Research, at IDBI Capital Markets & Securities.

On a year-to-date basis, shares of TCS have climbed 44 per cent while those of Infosys have surged 37 per cent. The benchmark S&P BSE Sensex has given three and a half per cent returns during the period.  In the July-September quarter, TCS has surged 18 per cent while Infosys has seen a 9 per cent rise.

Aditya Agarwala, the technical analyst at YES Securities, says both the stocks have witnessed a significant amount of correction in the recent past and post the correction, Infosys looks a better bet on the charts as compared to TCS. “From the investors’ point of view, a long can be taken in Infosys at the current levels. I see Infosys touching the levels of Rs 775- 800 in the coming four-five months,” Agarwala added. TCS is likely to see some more correction before an up move, the analyst said.

Apurva Prasad, the IT analyst at HDFC Securities, however, is more bullish on TCS. Prasad expects 11 per cent earnings CAGR (compound annual growth rate) in case of Infosys and about 15 per cent for TCS. On Infosys, Prasad said the deal win of over $2 billion is very significant and it shows that growth is coming back. “Margin disappointed slightly but it can recover post FY19. “We have a buy on both TCS and Infosys but are more positive on TCS,” Prasad added.

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