Why did investors lose faith in TCS share price? IT-giant posted good Q2 result, but stock plunges over 3%

TCS stock became the top loser on stock exchanges today, as it was trading at Rs 1924.10 per piece, lower by Rs 55.65 or 2.81%. at around 13:01 hrs. However, the share price has dropped by over 3%, after touching intra day low of Rs 1904.80 per piece. This negative reaction from investors came even after TCS posted a good second quarter result for fiscal year FY19 (Q2FY19). 

TCS consolidated net profit stood at Rs 7,901 crore rising by 22.60% from Rs 6,460 crore in the corresponding period of previous year. While posting a good Q2FY19 result, TCS also highlighted its employee base, which was highest in 3 years this time.   

Meanwhile, the company's consolidated revenue stood at Rs 36,854 crore which was higher by 20.67% from Rs 30,541 crore a year ago, same period. While the revenue was up by 7.56% as against Rs 34,261 crore in preceding quarter. 

Rajesh Gopinathan, CEO and MD, said: "We are very pleased with our aIl-round strong performance in Q2. Revenue growth was driven by expanding demand for digital transformation across verticals, and continued acceleration in BFSI and Retail."  

With respect to profitability, TCS expects margins to remain static and in a narrow band of the current levels (25.8% in H1FY19) as the INR’s depreciation benefits have traditionally been invested in wage hikes and building new capabilities.  

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Then, what can be the reason for TCS to perform terribly on exchanges?

Talking about TCS's performance, Emkay said, "TCS' commentary regarding demand environment has not turned incrementally better over its Q1FY19 commentary, and thus this lead to a disappointment for players that are trading expensive from a valuation to growth perspective in the company."

Emkay added, "TCS attributed its strong momentum to its differentiated capabilities (Machine first), and its unique delivery proposition (Distributed agile), which reaffirms our belief that TCS growth should not be seen as a secular sector-wide uptrend in IT spending."

On the stock price, Emkay said, "While TCS highlights its market share gain and unique margin improvement levers, TCS remains confident of revenue growth and margin protection to maintain hold with a TP of 2,070 based on 21 X sep'20E ESP."

On the other hand, Motilal Oswal said, " While currency on one hand provides a boost to the earnings, the events globally may still likely offset the same by keeping the valuation multiple, and hence the upside, in check. We maintain our Neutral rating."