Tata Consultancy Services, India’s biggest IT outsourcer, hit a new 52-week high on Tuesday. HCL Tech, the number 4 outsourcer, also hit a 52-week high amid a broad rally in Indian stocks.
TCS shares hit a high of Rs. 1,539.90, while HCL Tech shares shot up to Rs. 747. With the strong gains and a market cap that soared to Rs. 3 lakh crore, TCS has consolidated its lead over Reliance Industries as India’s most valuable firm.
IT stocks have outperformed the broader Nifty benchmark over the last week. The sector has remained relatively untouched unlike most other stocks that were hit post the announcement of the Union Budget last Thursday, primarily because post Budget large funds went “overweight” on IT stocks, which are considered to be defensive as they earn the majority of their revenues overseas.
Global investment bank Nomura said the Budget would not be a positive for the market, but it would continue to hold defensive growth, exporters and sectors benefitting from specific reforms such as IT services.
TCS is also likely to benefit from certain announcements in the Budget. The extension of the concessional tax rate of 15 per cent on dividend received from foreign subsidiaries for one more year as well as the exemption from having to pay a dividend distribution tax on the portion of dividends distributed to shareholders representing income received from foreign subsidiaries will be beneficial for TCS and other IT outsourcers, brokerage Ambit said.
Bank of America Merrill Lynch, however, said that FY14 forecast earnings of IT companies will be impacted negatively by the increase in corporate surcharge, by about of 1- 2 per cent.
But this will hit Infosys and Persistent most as they have the highest effective tax rate, the investment bank added.