Most Indian IT stocks have made healthy gains since last year as the coronavirus outbreak brightened the demand scenario due to a growing dependence on technology and more industries embracing the new normal. Recovery in the US economy and the weakness in the rupee, too, have worked in favour of the sector.
India's second-largest firm, in terms of market-capitalisation, Tata Consultancy Services (TCS) has been having a good run too. The stock rose more than a percent in early deals on June 18 to Rs 3,357.85, a whisker away from its 52-week high of 3,358.80. It, however, cooled off and erased all gains to end 0.70 percent lower at Rs 3,297 on BSE.
The IT bellwether has outperformed the benchmark Sensex in the last year and in 2021 as well.
As of June 17 closing, TCS had gained 16 percent on BSE in 2021 and rallied 62 percent since June 17, 2020. The Sensex has risen 10 percent this year and 56 percent over the last year.
A few days ago, N Chandrasekaran, Chairman, Tata Sons, said TCS shares had seen over 3,000 percent growth since the company was listed in 2004.
CEO Rajesh Gopinathan said TCS was seeing demand in “three horizons”—digital transformation of technology infrastructure followed by innovating the business models leveraging data and analytics, and finally, cloud ecosystem, where enterprises will collaborate with other adjacent enterprises.
TCS is a global leader. Its profit and revenue have been rising every quarter for the past three quarters. Annual net profits of the company have been improving for the last two years.
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Analysts are positive on the stock and even though it is trading near its 52-week high, they say there is steam left in TCS.
Ashis Biswas, Head of Research at CapitalVia Global Research expects the BFSI vertical to increase its investment in automation in the next two years.
There will be a robust demand scenario across geographies, and the increase in outsourcing is likely to enable profit expansion.
"The company's operating margins have been observed to grow by 130 basis points to 25.9 percent, boosted by higher outsourcing, higher utilisation, lower attrition, and a favourable currency mix. In addition, the management expects double-digit growth in FY22 due to substantial contract wins," Biswas said.
He has a “buy” call on the stock with a target price of Rs 3,740, which is a 13 percent upside from the current level of Rs 3,320.
Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities, has an “add” recommendation on the stock, with a target price of Rs 3,470, based on 28 times March-23E EPS with EPS CAGR at 17 percent over FY21-23E.
Vakil said COVID-19 has accelerated digital transformation and the need for resilient IT solutions, presenting significant business opportunities for companies like TCS.
"Accelerated cloud adoption, vendor consolidation, and an uptick in transformational deals will support the flight to quality. Demand is expected to increase for services around digital channels, collaboration and
workplace transformation," he said.
Pipeline is expanding in areas of cloud, workplace transformation, cost efficiency and automation, Vakil said.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.