The June quarter earnings season will get off to a more-exciting-than-usual start with IT majors Infosys and Tata Consultancy Services (TCS) coming out with their numbers on Thursday. Typically,its Infosys that kicks off the season but this time TCS has decided it wants to be first,too. The Infosys stock,the darling of investors for years together,has lost much of its sheen over the past year or so and has given up much of the premium it enjoyed. TCS,on the other hand,has moved up in the market capitalisation sweepstakes,pushing aside Reliance Industries to occupy the number one slot on a couple of occasions. Most of the Street now believes TCS will do better than Infosys; after the March 2012 quarter numbers,JPMorgan had argued that TCS has deservedly emerged as the valuation benchmark in the sector since it had broken further away from Infosys on growth and margins. Should Infosys lowers its revenue guidance for 2012-13 as expected,it could probably command an even lower multiple than it does now. The TCS stock has outperformed Infosys in terms of valuations as well market returns,especially over the last 3 months. While TCS has traded at a higher multiple since October 2010,the average premium has risen in last 3 months to 25 per cent currently. The TCS stock outperformed spectacularly in recent months,yielding 10 per cent,whereas Infosys stock lost 12 per cent. At current prices,TCS trades at a price to earnings multiple of 19 times one-year forward earnings whereas Infosys trades at 15 times forward. The Street is now hoping Infosys will go in for a buyback to support the stock given its huge cash pile of Rs 21,000 crore at the end of March. Kotak Institutional Equities recently argued that keeping large amounts of excess cash on the balance sheet has a material RoE-dilutive impact on Infosys which,coupled with its sub-par in relation to tier-I peers and the companys historical performance revenue growth,has had a notable impact on Infosys relative valuation multiple versus its peers. While TCS is also expected to see muted growth in the BFSI space,according to HSBC,stronger growth in India,Latin America,the UK and Europe would result in TCS leading the revenue growth in the three months to June. FE
