TCS will struggle to outperform in near term

CNBC-TV18’s Executive Editor, Udayan Mukherjee – TCS result is disappointing for the market and its current mood will see this kind of slippage because the mood on technology was just improving. I don’t think Satyam did a whole lot for that move yesterday; it wasn’t bad on Satyam, but 17% to 19%, just keeps you in that guessing zone, where you don’t know whether your table thumping bullish, confident or you are bullish with a lingering suspicion that things go wrong. So it’s that grey zone for Satyam’s guidance, it has been a strong stock and today TCS came up and says we told you it may not be great this quarter.

But it turned out to be a bit more surprising then what they had indicated to the market earlier. I think TCS will struggle to outperform in the near term till they come back with the quarter and say it was an aberration and look here are my numbers, it’s much better now than what I did in Q4FY08. They have to come in with good news to just take the sting out of their numbers, at Rs 1,000 they delivered about Rs 51 of earnings for 2008, they are trading at just under 19-20 times current years delivered earnings.

If we just project it to what people are expecting Rs 60 to Rs 61 next year, then they are already at about 17 times. At 17 times next years earnings, 19-20 times current year’s delivered earnings on the number that they have delivered in Q4, I would be very surprised if TCS outperforms from here. So for my money, Rs 1,000 remains the roof above TCS’s head for the time being, unless the market goes in a different orbit all together.

In the last 4-5 quarters, you had a general perception in the market that TCS has caught up with Infosys in terms of growth; it doesn’t deserve a PE discount to Infosys. That trade has played out, and now people will ask the questions once again after Infosys’ relatively more confident body language on whether the tide needs to turn in Infosys’ favour from TCS a little bit. Just for the next one quarter it shouldn’t be surprised if Infosys out performs TCS till TCS can come in Q1 and say that I am feeling much better again.