TCS Shares See Worst Day in Over 5 Years: What to Know

TCS fell by 9 per cent or around Rs 250 on Friday and witnessed its biggest one-day drop since May 2009. TCS was not the only IT stock to be hammered down today. HCL Tech also declined 9 per cent tracking weak earnings in the September quarter. (Read: Why HCL Tech shares slumped today)
 

Here are the reasons for the sharp selloff in TCS shares: (Track stock)

1) TCS delivered below-estimate dollar revenue growth in the September quarter. For most IT services companies, analysts and investors track the dollar sales numbers as clients overseas get billed in dollars. (Read)

2) TCS reported a 4.6 per cent quarter-on-quarter rise in organic revenue growth in Q2. This was lower than an NDTV poll of brokers, which saw growth at 5 per cent. Overall revenue growth (along with subsidiaries) grew 6.4 per cent quarter-on-quarter, lower than NDTV estimate of nearly 7 per cent growth.

3) TCS does not give revenue guidance, but the company had earlier said that it will beat FY14 revenue growth of 16.2 per cent in this fiscal. However, Q2 results indicate that TCS may not be able to overhaul last fiscal's revenue growth performance.

4) Macquarie says TCS will not be able to grow faster than 16 per cent in fiscal year 2014-15 and there are risks to Street's earnings per share estimates. A fall in EPS will weigh on share prices.

5) According to Nomura, the miss on revenue growth in Q2 raises the asking rate for third and fourth quarters to around 4 per cent sequential growth. "This will be difficult in a seasonally weaker period and hence, results suggest a moderation in growth outlook," the brokerage said.

6) The third quarter (October to December) has fewer working days because of furloughs in key markets of US and Europe. The fourth quarter (January to March) is weak because budget issues of clients.

7) TCS chief executive officer N Chandrasekaran blamed Q2 miss on three reasons: softness in insurance sector particularly in TCS' UK-based subsidiary Diligenta; slower-than-expected growth in retail vertical and a contraction in Latin America, which was contrary to expectations.

8) Diligenta registered de-growth for the second successive quarter impacting revenue growth in the insurance vertical and UK geography. Retail segment, which is the biggest money spinner for TCS after the financial services (BFSI) vertical, grew at 5.9 per cent in the September quarter as compared to 7 per cent in the June quarter. Growth in Latin America fell 4.8 per cent sequentially.

9) TCS growth slowed in UK and continental Europe due to cross-currency movements. This impacted overall revenues. "The impact on cost of currency on both Euro and Pound has been pretty significant this quarter," Mr Chandrasekaran said.

10) TCS, which has been the most bullish on growth prospects among Indian IT outsourcers, has outperformed its rivals over the last few years. However, for the first time in many quarters, the company's management sounded cautious. Standard Chartered says FY15 outlook of management is "toned down"

TCS closed 8.85 per cent lower at Rs 2,441.15 on NSE. HCL Tech ended 9.1 per cent lower at Rs 1,505.50. Both stocks underperformed the broader IT sub-index on the NSE, which closed 3.8 per cent lower.