How to play Tata Consultancy Services stock ahead of Q4 results

NEW DELHI: Tata Consultancy Services Ltd is scheduled to report its results for the quarter ended March 31 post the market hours on Wednesday.

India's leading software services exporter is expected to report a 2.22 per cent sequential fall in its net profits for the quarter ended March 31 to Rs 5196 core from Rs 5314 crore reported in the previous quarter, according to ET NOW estimates.

EBIT is seen at Rs 6,352.38 crore, or a 0.28 per cent QoQ rise compared to Rs 6,334.70 crore in the previous quarter. However, dollar revenues are expected to come at $3521 million, up 2.41 per cent as compared to $3438 million reported in the previous quarter.

At 12:20 p.m.; TCS was trading 1.7 per cent lower at Rs 2215. It hit a low of Rs 2200 and a high of Rs 2270 in trade today.

According to analysts, TCS has a habit of beating street expectations. However, the market appears to factor in the positive results beforehand and the expectations are low after the IT major said that the Q4 results might be lower than the previous quarter.

Last month, the TCS management had indicated (in its analyst meet held in March) that revenues and margins in the fourth quarter will be lower than those in the third quarter because of weak business in India and lower working days in the US due to chilly winters.

Generally, good numbers are followed by profit taking. Nevertheless, any positive surprise might lead to an initial spike up, say experts.

However, the management sounded positive on the FY15 demand outlook. Key focus will be commentary on discretionary spending, deal momentum and the outlook for BFSI and retail segments.

TCS has been consistently in long-term uptrend due to its fundamental performance, which beats its other peers in many aspects. However, in previous quarters, the IT sector had benefitted from the rupee depreciation, which is not the case in this quarter.

The stock is seeing a correction phase after a strong one-sided rally in recent past and may witness some profit booking even if the IT major comes out with better-than-expected results.

After rallying over 70 per cent in the calendar year 2013, shares of TCS have been trading in range, but with a positive bias so far in the year 2013, up a little over 4 per cent. However, since March the stock is trading sideways compared to over 6 per cent gain seen in the BSE Sensex.

“The stock is in a consolidation mode after appreciating over 50 per cent in FY14. The stock trades at nearly 17x FY15 and given the current valuations, the stock will get re-rated further only based on positive surprise in its reported earnings,” said Shashank Khade, Director & Chief Equity Advisor, Entrust Family Office Investment Advisors.

“The premium versus Infosys shall sustain until it continues with superior revenue and earnings growth on a comparative basis and the current valuation gap between Infosys and TCS has forced investors to build exposure in Infosys and maintain status quo on TCS ownership,” he added.

TCS has underperformed the market in the last six months and it has been consolidating in the Rs 2000-2300 zone since September 2013. The stock has rallied in the previous two trading sessions from a low of 2100 to test an intra-day high of 2258 on Tuesday.
“The stock is likely to face resistance at 2300 and 2380 levels in the short term. Once the stock moves beyond 2400, the stock is likely to head higher up to 2750 and on the contrary, the support levels are at 2170 and 2100,” said Vinit Pagaria, Senior Vice President - Investment Strategies at Microsec Capital Ltd.

“Investors are advised to hold the stock for the long term. However, traders would be better off booking long positions around 2280-2300 levels,” he added.

We have compiled a list of trading strategies from various analysts on TCS ahead of its quarterly results:

Ajit Mishra, AVP - Equity Retail Research, Religare Securities Ltd:

Infosys result has set the tone for IT counters. However, if we look at the TCS chart in isolation, it clearly shows short-term positive bias in place as it has been maintaining decisively above its long- term averages (100,200 EMA) on daily and weekly chart.

For fresh trade, one can initiate fresh long positions above the 2300 mark with strict stop loss of 2150 spot levels. Investors may also join the bandwagon and may utilize any dip for adding to their existing position.

Gaurav S. Ratnaparkhi, Technical Analyst at Sharekhan:

From the all-time high of Rs 2384, TCS formed a multi-week correction. In terms of Elliott Wave structure it formed a three wave correction, which unfolded in a channelised manner. The correction got over at 2011, from where the stock has started a fresh rally.

Daily momentum indicators are in line with the rally, whereas the weekly momentum indicators have completed the correction cycle & are ready for a new cycle on the upside.

Trading strategy for TCS would be to buy at current levels with a stop loss of 2174 for targets of 2384 - 2440 (the levels mentioned are cash levels).

Akshata Deshmukh, Chief Strategist - Trading, Networth Stock Broking:

Strategy: Sell TCS straddle of Rs 2,250
Sell 2250 PE @ 52 & Sell 2250 Ce @ 50. Total premium inflow per lot will be Rs 12,750.

Rationale: The IVs of TCS Options have already shot up ahead of results and, therefore, it would be ideal to short options. The strategy will be profitable as long as the stock trades in the range of Rs 2150 to Rs 2350, which is 4.5 per cent away from these at the money options.

The stock may show a gap-up or gap-down opening, but is expected to trade within this band soon thereafter.

Vinit Pagaria, Senior Vice President - Investment Strategies at Microsec Capital Ltd:

Traders can write the TCS April 2400 Call option in the range of Rs 15 to Rs 20 as the stock appears unlikely to give a breakout above this level and the existing high implied volatilities would fall once the results are announced.

Investors are advised to hold the stock for the long term. However, traders would be better of booking long positions around Rs 2280-2300 levels.

Nidhi Saraswat - Senior Research Analyst - Bonanza Portfolio Ltd:

The stock has already rallied on Tuesday ahead of its results, and if the results come even in-line with market expectations, we can expect profit booking at higher levels. The upside seems limited to 2300 level in near term, and investors may book profit in rallies, or buy the stock only in correction.
The stock has near term support at 2100-2010. Further rally can be expected only if the price crosses above the 2350 level. The stock is recommended for hold from long-term perspective.

D K Aggarwal, CMD at SMC Investments and Advisors Ltd:

The stock is continuously trading in higher highs and higher lows on daily chart, which is considered to be bullish. So one can initiate long at current levels for the upside target of 2400-2450 levels in near term.

Manish Hathiramani of manishhathiramani.com:

After having made a recent high of Rs 2378 in January this year, TCS has entered a range-bound price bracket, between Rs 2010 and Rs 2300. A trading move would ideally set in once either price level is triggered.

From a short-term perspective, I would expect an upward move on this stock if it can maintain above Rs 2265. This would give sufficient fuel to the technology major to initiate fresh buying interest among investors and traders.



(Views and recommendations expressed in this section are the analysts’ own and do not represent those of EconomicTimes.com. Please consult your financial advisor before taking any position in the stocks mentioned.)