An upbeat commentary and strong deal wins in a seasonally weak quarter by industry leader Tata Consultancy Services (TCS) have sparked fresh optimism among brokerages. The management highlighted early signs of a revival in discretionary demand in the October-December quarter, prompting brokerages to anticipate margin improvements by FY26.
The strong deal wins and upbeat management comments also lifted shares of the company 6 percent higher in opening trade on January 10. At 12.44 pm, shares of TCS were trading at Rs 4,278.75 on the NSE.
TCS, the first IT firm to announce its Q3 FY25 earnings, reported its highest third-quarter order book in five years, with a total contract value (TCV) of $10.2 billion. Despite the seasonally weak quarter due to the holiday season in core markets like North America, TCV rose 25.93 percent year-on-year and 18.6 percent sequentially.
The management attributed its optimism to a shift in deal dynamics, including shorter deal cycles and a better mix of wins, which bolsters confidence in stronger performances for CY25 and FY26 compared to CY24. Additionally, CEO and MD K Krithivasan cited easing interest rates, softer inflation, and reduced political uncertainty post-US presidential elections as factors supporting discretionary demand revival.
Drawing optimism, CLSA upgraded the stock to 'outperform' and raised its price target to Rs 4,546, citing improved demand commentary and a sharp uptick in the order book. CLSA also highlighted artificial intelligence (AI) as a growth driver for TCS in the future.
Nuvama Institutional Equities echoed this optimism, calling the management's commentary the most positive in two years. The brokerage highlighted strong deal wins and the management's efforts to offset BSNL revenue impacts as key positives. Nuvama retained its 'buy' rating while marginally raising its price target to Rs 5,200.
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Attractive stock valuation further adds to TCS's appeal, according to brokerages like CLSA, Nuvama, and Jefferies. Based on the upbeat outlook, Jefferies projected a 9 percent earnings-per-stock CAGR for FY25-27, citing potential margin improvements post-BSNL ramp-down. The brokerage maintained its 'buy' rating with a price target of Rs 4,760.
However, not all brokerages are equally bullish. Nomura remains cautious about TCS's growth visibility and the challenge of backfilling BSNL revenues in FY26, maintaining a 'neutral' rating with a price target of Rs 4,020.
Similarly, HSBC, while acknowledging that TCS’s performance may have bottomed out, highlighted downside risks to FY26 consensus. The firm expressed concerns over the possibility of TCS underperforming its large peers in FY26 due to its higher exposure to Europe and the absence of BSNL revenues, which lifted growth in FY25. Accordingly, HSBC retained its 'hold' rating with a price target of Rs 4,540.
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