Infosys outperforms TCS in at least three straight quarters year-on-year. Will it continue?

Infosys’ result was among the most awaited for the quarter ending September 2020, and not without reason. India’s second largest IT firm has been performing consistently over the last year and has outperformed larger rival TCS, at least in the last three quarters.

After what analysts describe as the golden period in Infosys history, when it was considered a bellwether, the company is seeing similar growth momentum now.

That was way back in 2010, around the time of the global financial crisis. “Between 2010 and 2014, there was a lot of leadership churn,” said Pareekh Jain, founder, Pareekh Consulting. During that period, TCS gained the IT bellwether statut that it continues to hold even now, he added.

On the back of the covid pandemic, Infosys has become an outlier reporting strong deal wins and consistently better growth. Infosys is becoming a bellwether again and the strategy and investments it has made over the last two years will help, chairman Nandan Nilekani told  Business Standard in a recent interview.

So, will it be a bellwether? The coming quarters would be telling, for sustenance of this growth would be important. However, analysts have pointed out that the company is well on track and poised for growth in the coming months.

Analysts expect the valuation between TCS and Infosys to narrow as well.

Let's look at the Q2 results: The firm reported stellar Q2 results that beat expectations in revenue and margins. Revenue grew $3,312 million for the quarter ended September 2020, up 6 percent quarter-on-quarter and 3.2 percent year-on-year. Infosys also saw its highest ever deal wins at $3.15 billion during the period, including the Vanguard deal. Of this, the net new total contract value share is about 86 percent.

In addition, the company’s growth over the last three quarters (between March and September) has been quite impressive.

On a y-o-y basis, it grew 4.4 percent, -0.3 percent and 3.2 percent respectively. On the other hand, its rival TCS has grown, 0.87 percent, -7.7 percent and -1.7 percent respectively y-o-y for the same time period.

Sudheer Guntapalli and Hardik Sangani, research analysts, ICICI Securities, said in a note that the company’s growth has consistently outperformed that of TCS over the previous six quarters and expect this to continue.

The growth momentum largely comes on three accounts

1. Strong deal momentum
2. Investments the company made in digital paying off
3. Sector recovery in BFS, retail, life sciences