Shares of Tata Consultancy Services opened one percent higher and hit a 52-week high of Rs 3,659 on October 9 after the company announced plans to consider a share buyback, along with its July-September results on October 11. However, the stock soon fell off its highs to trade marginally higher.
The stock reaction aligned with the views from foreign brokerage Morgan Stanley which believes the buyback was unlikely to trigger an outperformance of the stock.
Morgan Stanley also feels that the announcement of the buyback plans does not necessarily provide enough assurance to stakeholders as it was already anticipated by the market for the last two quarters.
The buyback announcement from TCS comes after two other information technology companies, Infosys and Wipro completed their share buybacks earlier this year. Infosys rolled out its buyback after purchasing 6.04 crore shares for Rs 9,300 crore in February, while Wipro announced its largest-ever share buyback worth Rs 12,000 crore in June.
Moreover, in a scenario where quarterly earnings for information technology companies have been under pressure due to a slow offtake in order wins, the Street is more likely to remain focused on the July-September financial performance of TCS.
At 09.23 am, shares of TCS were trading 0.3 percent higher at Rs 3,633.60 on the National Stock Exchange.
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The foreign brokerage also expects TCS to show a slight improvement in its revenue growth on a sequential basis in the September quarter as order intake for the IT major is likely to remain robust.
Analysts at B&K Securities anticipate a 1 percent sequential earnings growth for TCS in the second quarter while those at Jefferies expect a 20-40 basis points margin expansion.
Despite expectations of a robust orderbook, Morgan Stanley's earnings estimates for TCS are lower than the consensus for FY24-25. The firm also attributes pressure on margins and a pricey stock valuation as major headwinds for the IT company.
"Premium to its own average for the last five years is making the risk-reward unfavourable for TCS," the brokerage stated in its report. Morgan Stanley also holds an 'equalweight' rating on the stock with a price target of Rs 3,730, which reflects a mere 3 percent upside potential from Friday's close.
Also Read | TCS to consider share buyback along with Q2 results, board meeting on Oct 11
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