Implied’ profit warning: In a recent press release, TCS management has stated that at the end of August 2016, it sees holding back of discretionary spending from clients, particularly in US BFSI segment – leading to sequential loss of momentum in Q2FY17. We note that this ‘implied’ profit warning comes after a strong Q1FY17, where the company delivered results ahead of expectations, on almost all counts. Also, for long, the management had been denying any significant headwinds, particularly in the BFSI space.

Outlook and valuation: We downgrade our FY17/18 earnings estimates by 6%, on the back of expected poor performance in Q2. We now see TCS reporting 7.8% USD revenue growth in FY17 – significantly below NASSCOM guidance (10-12%). Also, we believe that the company will find it difficult to maintain margins in its ‘comfort zone’ as most of the levers like utilization (at peak level when last reported) and attrition (lowest in last eight quarters) have already been utilized.They continue to value the company at 17x FY18 P/E. Our price target of Rs 2400 (Rs 2550 earlier), maintain NEUTRAL.