TCS Rises 4% On Strong Commentary, Signs Of Demand Revival; Should You Buy, Sell Or Hold? – News18
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TCS shares rise 4% following optimistic management commentary on demand revival, deal wins, and future growth prospects; Buy, Sell Or Hold?
Should you buy TCS shares post Q3 earnings?
Shares of Tata Consultancy Services Ltd. (TCS) are trading with gains of 4% and are among the top gainer on the Nifty 50 index on Friday, January 10. The move in TCS is also reflecting on the other Nifty IT components. The Nifty IT index is trading 2.5% higher in the early minutes of Friday’s trade.
The IT giant has sparked renewed optimism among brokerages following its strong deal wins and positive commentary, even in a typically weak quarter. The management highlighted early signs of a recovery in discretionary demand during the October-December period, leading brokerages to forecast margin improvements by FY26.
The strong deal wins and upbeat management outlook also contributed to a rise in TCS’s stock price. As of 09:18 AM, shares of TCS were trading at Rs 4,218.30 on the NSE.
TCS, the first IT company to report its Q3 FY25 earnings, announced its highest third-quarter order book in five years, with a total contract value (TCV) of $10.2 billion. Despite the usual seasonality of a weaker quarter due to the holiday season in key markets like North America, TCV rose by 25.93% year-on-year and 18.6% sequentially.
The management attributed the positive outlook to changes in deal dynamics, such as shorter deal cycles and a stronger mix of wins, which increased confidence for CY25 and FY26 performance. CEO and MD K Krithivasan pointed to factors like easing interest rates, softer inflation, and reduced political uncertainty following the US presidential elections as supportive of the revival in discretionary demand.
Should you invest in TCS shares after Q3 results?
The majority of analysts covering TCS continue to maintain a “buy” or bullish stance on the stock following its December quarter results. CLSA has even upgraded its rating on the stock.
Consensus estimates suggest a potential upside of 12.3% for TCS shares from current levels.
TCS management expects the current calendar year to outperform 2024, and the company announced a total dividend of Rs 76 per share, which includes a Rs 10 interim dividend and a special dividend of Rs 66 per share.
Brokerage firm Bernstein maintained its “outperform” rating on the stock with a price target of Rs 4,700. Bernstein cited the acceleration of deal momentum, broad-based growth, and an upbeat management outlook as signs of an upcoming upcycle for TCS.
CLSA upgraded its rating on TCS to “outperform” from “neutral” and raised its price target to Rs 4,546 from Rs 4,251, noting multiple growth opportunities ahead. The brokerage also highlighted attractive valuations relative to TCS’s five-year average and positive demand commentary, particularly regarding the sharp increase in the order book and the potential impact of AI.
Nomura, however, remains “neutral” on TCS with a price target of Rs 4,020, expressing concerns over the visibility of growth for FY26. While noting improvements in decision-making and discretionary demand, Nomura believes there is still uncertainty around TCS’s growth prospects for the next fiscal year. The firm does, however, expect TCS’s margins to improve in FY26.
HSBC also maintains a “neutral” rating with a price target of Rs 4,540. The firm suggests that while TCS’s performance may have bottomed out, it still sees downside risks for consensus estimates for FY26. HSBC pointed out that TCS could underperform other large peers due to its higher exposure to weakening demand in Europe and the conclusion of the BSNL deal, which supported growth in FY25.
However, HSBC sees upside risks from favorable forex movements and a strong recovery in discretionary demand.
Over the last 12 months, TCS has underperformed its peer Infosys, and it currently trades at a discount to Infosys in terms of valuation.