TCS shares at record high on broker upgrades

MUMBAI, INDIA: Shares in India's Tata Consultancy Services rose as much as 3.1 percent to a record high on Monday, as brokerages upgraded the stock after the top software services exporter posted forecast-beating quarterly results.

India's export-driven software services companies have seen a slew of brokerage upgrades in recent months as the sector showed signs of resurgence after the global economic slowdown had shut the tap on technology spending and put pressure on fees.

The strong earnings by Tata Consultancy and No. 2 Infosys Technologies in the latest quarter have spurred hopes of a recovery in the sector, but analysts say margins could be under pressure due to a firmer rupee and annual wage hikes. "Things are looking better for software companies, but we have to wait and see if this momentum can be maintained," said A.N. Sridhar, a fund manager at Sahara Mutual Fund. "Rupee is going to be the most important thing to be watched."

JPMorgan said Tata Consultancy's strong performance, which followed Infosys robust results, reflected a sharp increase in outsourcing demand.

By 2:20 p.m., shares in Tata Consultancy, valued at $34 billion, had gained 1.2 percent at 801 rupees, after having risen to an all-time high of 816.40 rupees, in a broader market .BSESN up 0.4 per cent.

JPMorgan raised its target price on Tata Consultancy to 850 rupees from 725 rupees earlier, saying the outlook was positive with the management indicating better deal pipeline and positive sentiment on technology spending.

Bank of America-Merrill Lynch upgraded the stock to buy from underperform, saying it should benefit from stabilisation in IT budgets and a pick up in demand particularly from the banking, financial services and insurance sectors. The country's $60 billion outsourcing industry, which manages computer networks and maintains technology operations for global firms, has resumed hiring and is raising salaries - reflecting a surge in demand.

Mumbai-based Tata Consultancy expects to lift a freeze on wage hikes in April-June, Ajoy Mukherjee, vice president and head of global human resources told reporters on Monday. The company added a net 7,417 staff in Oct-Dec, its biggest pace of quarterly addition in a year and taking the total headcount to more than 130,000.

In the current quarter to March, Tata Consultancy will add 8,300 trainees and 3,000 experienced staff, Mukherjee said.

Earnings surprise

Tata Consultancy, part of the Tata Group that spans autos, commodities and services businesses, posted a 33 percent rise in quarterly profit on Friday and said it was seeing increased demand for services.

Earlier last week, smaller rival Infosys, a trendsetter for the Indian outsourcing sector, raised forecasts for this year as large financial services clients boost orders in an improving global economy.

Many brokerages, including Bank of America-Merrill Lynch, had upgraded Infosys after its results.

StarMine's SmartEstimates shows a predicted earnings surprise of 6.3 per cent for Infosys' earnings per share for the quarter ending March 2010.

SmartEstimates predict earnings more accurately than consensus estimates by putting more weight on the recent forecasts of StarMine's top-rated analysts.

India's No. 3 outsourcer Wipro should report a 15 percent rise in December quarter net profit on Wednesday, according to a Reuters poll.