India's TCS falls after a rare annual revenue decline dulls the quarterly earnings beat and deal wins

Tata Consultancy Services shares fell almost 3% on the Friday after a rare revenue drop in the past year outweighed a strong deal win and a quarterly earnings boost. This suggests that sustained growth is still elusive due to weak client spending, rising costs and low consumer confidence.

The stock was headed for its worst day since nearly a week and was about to end a six session winning streak.

The IT index and benchmark Nifty50 both declined by the third-largest amount.

The Nifty 50 traded 0.9% higher, while the IT index was down by 2.2%.

TCS beat fourth quarter earnings estimates, reported 12 billion in deals won and analysts were disappointed by a 2.4% decline in its dollar revenue for the full year -?its earliest annual drop since listing.

Dolat Capital said that despite a sequential improvement in the quarter, the revenue decline for the year underscored the caution of clients regarding their technology budgets.

Analysts at Jefferies echoed this view, saying that the results showed little evidence of a meaningful increase in demand. They also said an uncertain growth outlook might be driving the underperformance in the stocks.

U.S. listed shares of TCS’ smaller rivals Infosys, and Wipro?also lost almost 2% over night.

Analysts warned that TCS's margins could only increase by a maximum of?10 basis points during the quarter.

BOBCaps stated that higher subcontracting and wage costs, as well as continued investments in AI platforms could limit near-term margin growth.

TCS shares are down nearly 20,5% this year compared to a drop of 19% in the IT index. This is due to?concerns about AI-led disruptions and weak client expenditure. The benchmark Nifty index has fallen 8.2% in the past year.

(source: Reuters)