Infosys shares have highest weight in Nifty IT index; TCS positioned second

IT stocks are in focus as the top Indian software companies, Tata Consultancy Services (TCS), Infosys, Wipro and Persistent Systems, have announced their Q4 results. The Nifty IT index, the benchmark that gauges the performance of IT stocks, has failed to give any return in the year 2024 so far.

The Nifty IT index has fallen over 5% year-to-date (YTD), but has rallied more than 24% in the past one year. The index is designed to reflect the behaviour of companies engaged in activities such as software development, hardware, IT infrastructure etc. It captures the performance of the Indian IT companies and comprises 10 companies listed on the National Stock Exchange (NSE).

A key fact to note about the index is that Infosys, the second-largest IT services company in India, has the highest weightage in the Nifty IT index. TCS, which is ranked as India’s largest IT sector company, holds lower weight than Infosys in the Nifty IT index.

Among the constituents of the Nifty IT index, Infosys shares have the highest 26.80% weight followed by TCS shares with 24.86% weight in the index. HCL Technologies holds 10.34% weight, while Tech Mahindra and Wipro hold 9.97% and 8.52% weight in the Nifty IT index, respectively, as per NSE Indices.

Also Read: Infosys shares trade lower after Q4 results 2024. Buy or sell?

Other stocks in the index include LTIMindtree with a 5.7% weight, Persistent Systems at 5.17%, Coforge at 4.24%, Mphasis at 2.50% and L&T Technology Services with a 1.90% weight. 

The Nifty IT index rebalancing is done semi-annually on the last working day of March and September. 

The share price performance of these index constituents also remains weak this year. Infosys share price fell nearly 8%, while TCS shares are up by just 1.3% YTD. HCL Tech shares are flat YTD and down over 5% in three months. Wipro share price has dropped 2% YTD.

The IT companies have so far reported steady-to-weak earnings for the March quarter with subdued growth amid unabated headwinds. The largecap IT services players are expected to report modest revenue growth in Q4FY24 as muted demand trends continue on account of weak discretionary spending and cautious behavior by clients, amid an uncertain global macroeconomic situation.

Read here: Q4 results preview: IT sector likely to report muted revenue growth with stable margins; all eyes on FY25 guidance

Among the Nifty IT stocks, Infosys Q4 results missed estimates as the company reported a net profit of ₹7,975 crore in the March quarter, while total revenues were at ₹37,923 crore. The IT major’s revenues in constant currency (CC) terms declined by 2.2% sequentially. Infosys sees its revenue growth of 1-3% in constant currency terms in FY25 while it expects an operating margin of 20-22%.

The weakness in Infosys Q4 results was on account of persistent muted discretionary spending, along with a one-time impact of 100 bps due to re-scoping and re-negotiation with a large BFSI client. 

Even after lowering revenue growth guidance through FY24, Infosys missed its implied Q4 guidance which raises concerns on growth predictability, analysts said.

Read here: Infosys Q4 Results Highlights: Net profit at ₹7,975 crore, revenue up 0.2% in FY24; dividend declared

Meanwhile, TCS posted a consolidated net profit of ₹12,434 crore in Q4FY24, a 9% increase from ₹11,392 crore recorded a year earlier. Revenue from operations rose 3.5% YoY to ₹61,237 crore. 

Analysts at Prabhudas Lilladher said TCS’ business mix is more favorable to the current enterprise spends which are diverted to stimulate core business functions or bring efficiency to their operations. They believe TCS is well positioned to capture those spends and win disproportionately among its peers, which is very well evident through robust wins and strong executions during the quarter.

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