TCS gains on Oracle Q2; Infosys in focus

IT stocks gained on Wednesday, buoyed by the strong showing of Oracle, the world's No. 3 software maker, which said software sales growth will stay strong into the New Year.

Oracle beat fiscal second quarter results last night with very strong license revenue, which came in at $2.4 billion indicating a 17 per cent year-on-year jump. Brokerages said Oracle's earnings were marginally positive for Indian IT, given strong license sales.

The BSE IT index rose nearly 1 per cent, outperforming the 0.5 per cent gain in the broader Sensex. IT stocks have been in a downtrend with the CNX IT index (on the NSE) managing to close higher only thrice in the last 12 sessions.

Fiscal cliff related developments also had a positive rub off on IT stocks. U.S. political leaders appeared to be closing in on a budget deal to avert the "fiscal cliff" by the year-end deadline. Economists have been warning the U.S. economy could be thrown back into recession without a deal.

Among frontline stocks, TCS was the biggest gainer, rising 2 per cent to Rs 1,235. Global investment bank Morgan Stanley upgraded TCS to "overweight" from "equal weight" and raised the target price to Rs 1,415 from Rs 1,225 per share. Early data points indicate that IT spending could be stable in 2013, Morgan Stanley said, adding that fiscal 2012-14 revenue growth rates can bounce back.

The recent correction creates an opportunity for medium- to long-term investors, the investment bank added.

Most brokerages prefer TCS over Infosys after recent management commentary indicated that Infosys may continue to face difficulties in 2013. The outsourcing icon, which has missed its own revenue guidance in three of the past four quarters, has struggled as its big customers cut costs, and analysts have criticized management for sticking with a rigid pricing policy when competitors have offered more flexible plans.

Infosys executives have sounded downbeat in recent interviews and in meetings with analysts, citing client troubles ranging from Hurricane Sandy-related shutdowns to worries about the U.S. "fiscal cliff" of tax hikes and spending cuts.

However, some analysts like Hitesh Shah, director of IDFC Securities prefer Infosys over TCS, given the recent underperformance in the stock. Infosys shares have fallen 18 percent this year compared with a 7 percent gain for larger rival Tata Consultancy Services.

IDFC Securities has an "outperform" rating on Infosys and a "neutral" rating on TCS because Infosys is attractively valued.

Infosys shares traded 0.4 per cent higher at Rs 2,280 on the BSE at 10.50 a.m.

(With inputs from Reuters)

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