Kshitij Anand Moneycontrol News
India’s largest software services exporter TCS rose by about 14 percent in the calendar year 2017 and is all set to breakout in the year 2018, feel experts. The December quarter results might not be a blockbuster but any volatility could give long-term investors a buying opportunity.
TCS rallied by about 4 percent ahead of results on expectations of healthy results from the software giant. The stocks closed 3.6 percent higher at Rs 2,806, but the rally is not over a year, going by commentary from technical gurus.
The stock has shown a tendency of closing in red on the day of results in the last 12 months but gained post results. This bluechip stock has a long way to go and thus investors should use dips to enter the stock for long term.
“The stock seems to have configured its own pattern if we take a glance at its price action before and after its quarterly earnings. On last four occasions, we have not observed any sudden jump in the volatility on the result day as some of its peer counters used to experience,” Sameet Chavan, Chief Analyst- Technical & Derivatives, Angel Broking Pvt Ltd told Moneycontrol.
“But, there has been a typical behaviour the stock has been following, which we believe would certainly raise the bar of expectations. The stock prices rallied quite steadily on previous occasions post the earnings and in the process, have been quite successful to give fair returns to its investors,” he said.
Historically for the IT sector, we have seen that the December quarter is usually a weak quarter. It gets impacted by seasonality factor but this time it might post mild revenue acceleration. The revenue growth for the December quarter is expected at 1.2 percent QoQ and 9.1 percent on a YoY basis.
"The September-December quarter has seasonally been a weak quarter for IT companies, owing to furloughs and holidays in the US Unlike Q3FY2017, this time the already-challenging business environment was relieved from cross-currency headwinds, though there were cross-currency tailwinds during the past two sequential quarters," Sharekhan said in a note.
For the quarter, US dollar revenue growth is expected to be at 1-2.5 percent. Infosys, TCS, and Wipro are expected to report sequential constant currency revenue growth of 1.1 percent, 1.1 percent, 0.8 percent, respectively, said the note.
The IT major is expected to report 1.3 percent quarter-on-quarter (QoQ) rise in the net profit to Rs 6,529 crore for the quarter ended December 2017, compared to Rs 6,778 crore reported in the previous quarter.
The domestic brokerage firm expects 1.2 percent QoQ growth on CC basis and cross-currency tailwinds of around 10bps. Soft revenue growth is expected due to furloughs and soft traction in BFS in North America.
The EBITDA margin is expected to improve by 10 bps on a QoQ basis, led by the absence of wage hikes and productivity improvements.
Key monitorable, according to Sharekhan are -- (1) Outlook on-demand environment in BFS (in North America); (2) outlook on demand and clients’ budget for CY2018 in retail; (3) large deal wins; (4) margin outlook; (5) digital initiatives and growth outlook going ahead; and (6) implication of U.S. tax reforms.
We have collated a list of trading ideas from various technical experts on how to trade TCS ahead of results:
Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in
TCS appears to have decisively registered a breakout in last December above the down sloping trend line on long-term charts signalling the end of a downtrend. Hence, logically its next move should be to target its lifetime high of 2840 registered in October 2014.
Investors should continue to hold this counter for an initial target of Rs2840 and beyond that, we will not be surprised to see a bigger target of Rs2950 on this counter going forward. For any reason, if it corrects post results then fresh buying should be considered close to Rs2700 levels.
Sameet Chavan, Chief Analyst- Technical & Derivatives, Angel Broking Pvt Ltd.
Since there has been no major volatility seen on the ‘D-day’, we need to first see how it trades and where it stabilizes post the numbers. Looking at Wednesday’s massive rally to confirm a technical breakout; there is no second thought that the stock still has a long way to go from the current level.
In case of a favorable outcome, we would expect this stock touching the magical figure of Rs3000 quite soon. Hence, any dip towards Rs2750 – 2730 should be used as a buying opportunity by keeping a strict entry point below its recent base of Rs2600.
If we project the target of the ‘V’ pattern, then the stock can see levels of Rs 3,000 – 3,100 in months to come. Investors with existing positions should certainly stay put as we expect this IT giant to keep roaring and showing its dominance in this field.
Pushkaraj Sham Kanitkar, AVP - Technical Research at GEPL Capital
The overall move seems pretty gradual and hence the option premiums are pretty balanced. In view of the same, it would be worthwhile having a take at the 2800-CE which currently quotes @ 50-55 thereby the loss remains limited.
On the upside, any move past the 2800-2850 resistance band will give rise to a momentum play – a pre-requisite for a good options trade.
Aditya Agarwal, Technical Research Head, Way2Wealth Brokers Pvt. Ltd.
After a Consolidation of 3 years in a broad range of 2100-2700, TCS gave breakout in Tuesday’s session and managed to close above that. Overall, the outlook for TCS remains bullish and we expect the stock to test 3150-3200 levels in the medium term.
Investors can Buy 2800 Call at CMP 61 and Sell 2900 Call at CMP 27. Maximum profit if stocks close at or above 2900 will be 66 points whereas on the lower side if it closes below 2800 than the maximum loss will be 34 points.
Pragnesh Jain, AVP Technical Research - Institutional Equities, Systematix Shares
For the past 3 years TCS has been facing stiff Resistance between 2750-2810 zone; which make it a crucial resistance – ‘A Make or Break zone’. However indicators supportive indicators suggest chances of a breakout are higher this time.
A decisive breakout above 2810 will confirm ‘Double bottom formation’ on the monthly charts – which open upside potential of 3450-3460 over the next 12-18 months. Short term to medium traders can play for the upside potential of 2950-3000 followed by 3200-3250 levels where intermediate resistance is seen.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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