Abhay Agarwal, managing director of Piper Serica Advisors, has questioned the quality of Tata Consultancy Services' September-quarter earnings.
He said the profit rise owes more to a weaker rupee than to underlying demand.
Speaking to NDTV Profit, Agarwal said TCS's constant-currency growth was below 1% and that "the profits are largely driven by currency depreciation".
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He said he did not want to give a company-specific opinion.
But he asked, "Where is growth going to come from?" for companies in IT services. He called the sector a "growth-less defensive cash flow business", safe for value investors but not for growth investors.
The reported numbers show the gap he pointed to. TCS reported a 15% rise in net profit to Rs 13,884 crore for the quarter, with revenue up 11.2% to Rs 73,188 crore.
In constant currency, revenue grew only 0.5% sequentially and 2.8% year-on-year.
In dollar terms, revenue rose 2.4% to $7.64 billion, while net income slipped 0.9% to $1.45 billion. The difference between the rupee and constant-currency figures reflects the weaker rupee, which inflates reported earnings of exporters.
TCS has presented a more upbeat picture. Chief Executive K Krithivasan said growth was broad-based and that, looking at the pipeline, deal signings and client conversations, he is confident the momentum will continue.
Annualised AI revenue stood at $3.1 billion, crossing 10% of revenue. The company also reported a total contract value of $9.6 billion for the quarter. The 0.5% sequential constant-currency growth was in line with street estimates.
Agarwal said investors should not expect a lasting re-rating.
"You will see momentary pickups and then sideways return," he said, adding that this is "a classic space that has done nothing for last three, four years". It is difficult to see what will change now, he said, "that they will all start firing again".
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The comments come as the sector faces fresh US scrutiny. The US Department of Labor on Thursday suspended eight companies, including Microsoft, Adobe, Cognizant, Infosys, Tata, Wipro, HCL and Capgemini, from the PERM programme.
TCS has said its PERM applications were in single digits over the last two years and that it expects no impact on its workforce strategy.
Agarwal said that, with growth missing, valuation support is what matters for the IT stocks. He pointed to FMCG as a space he is now looking at after staying away for two years.
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