Shares of India’s second-largest software services exporter have underperformed its larger peer over the past year even as it reported better earnings so far this fiscal.
While Infosys Ltd. gained 6 percent in the past 12 months, Tata Consultancy Services Ltd. jumped 13 percent beating the 9 percent rise in the benchmark Nifty IT Index.
TCS outperformed on the bourses even as it has lagged Infosys in revenue and earnings per share so far in 2019-20.
The Bengaluru-based Infosys trades at 20 times its 12-month forward earnings for the ongoing fiscal, a near 20 percent discount to TCS’ 24.8 times. Analysts now expect Infosys’ shares to outperform, closing the valuation gap.
- The consensus of analysts tracked by Bloomberg expects an upside of 6.9 percent over the next 12 months for Infosys in comparison with a 1.7 percent decline for TCS.
- And 36 of the 49 analysts tracking Infosys suggest a ‘Buy’ compared with 15 of 50 for TCS.
Nomura prefers Infosys and expects it to narrow the valuation gap with its larger peer. The brokerage projects both the companies to have similar annualised earnings growth of around 7.3 percent EPS between FY19 and FY22.
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Infosys is also more upbeat than its larger rival. While it indicated improvement in its client spending, specifically from North American financial institutions, TCS has pointed to pressure from its clients, according to Kotak Institutional Equities.
Also Read: How TCS, Infosys, Wipro, And HCL Tech Fared In Q3
Infosys, in its December quarter earnings, guided for a revenue growth of 10-10.5 percent in 2019-20 in constant currency terms, higher than the 9-10 percent forecast in the previous quarter. TCS’ Chief Executive Officer Rajesh Gopinathan said the company would be happy with an 8 percent growth.
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