CLSA gives 'Outperform' rating to TCS on SaaS-led growth, AI adoption

Enterprise AI, SaaS Boom Power CLSA’s Bullish View on TCS

• CLSA maintains 'Outperform' rating on TCS, target price Rs 2,686
• SaaS and AI adoption seen as key growth drivers for TCS
• TCS expected to benefit from ServiceNow partnership and AI trends

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At a time when the Nifty IT index has corrected sharply, falling nearly 20 percent this month, brokerage firm CLSA has reiterated its ‘Outperform’ rating on Tata Consultancy Services (TCS), sharing a target price at Rs 2,686 per share. The brokerage believes that despite near-term noise around AI and discretionary tech spending, business for system integrators (SIs) like TCS remains largely “business-as-usual.”

SaaS, AI adoption key growth drivers

CLSA said software-as-a-service (SaaS) implementation continues to be a key growth driver, supported by strong demand for enterprise automation and workflow transformation.

It pointed to TCS’s expanded partnership with ServiceNow which is aimed at accelerating large-scale AI adoption among enterprises.

ServiceNow, a major SaaS platform provider, reported 20.5 percent year-on-year constant currency (CC) growth in FY25 and has guided for 19.5–20 percent CC growth in FY26, backed by a strong order book. CLSA expects this to translate into similar growth momentum for system integrators like TCS.

ServiceNow has also partnered with foundation model companies such as Anthropic and OpenAI. CLSA believes this will further boost enterprise spending on implementation and integration services, benefiting large IT services firms.

System & service management software market to grow in double digits

According to market intelligence firm IDC, the global system and service management software market is expected to grow at a 10 percent compound annual growth rate (CAGR) between 2024 and 2029, providing a long runway for companies like TCS.

ServiceNow’s cloud-based platform offers solutions across IT service management, operations, human resources, customer service and security operations.

Having said that, the brokerage firm lagged key downside risks including weaker-than-expected deal wins, pricing pressure, rising competition, rupee appreciation against the dollar, and an uncertain US macro environment marked by concerns over inflation, bond yields, tariffs and policy changes.

However, it maintained that TCS remains well-positioned to ride the next phase of AI-led enterprise transformation, even as near-term sentiment around IT stocks stays cautious.