Tata Consultancy Services (TCS) is India’s largest IT services company, with a market capitalisation of over 14 trillion. As a leading global technology services provider, TCS’s share price movement is closely monitored by investors in India and internationally.
In this blog post, we will analyse TCS’s recent financial performance, industry trends, and other key factors to understand the outlook for TCS’s share price over the next quarter. Though predicting short-term stock price fluctuations involves uncertainties, a structured analysis of TCS’s operations and external dynamics can offer insights into likely trajectories.
Measuring customer contract wins, revenue patterns, margins, sectoral challenges, and macroeconomic environment may indicate potential share price trends TCS could experience in the upcoming months.
TCS Share Price Over the Last Year
- TCS share has given good returns of ~12% over the last 1 year
- Outperformed Nifty IT index, which gave ~11% returns in the same period
- Showed resilience even when markets corrected sharply earlier this year
- Trades at PE multiple of ~28x its trailing 12-month earnings
TCS’s share price has seen a healthy rise over the last year. Although the markets witnessed high volatility amid global recession fears, geopolitical issues, rising interest rates, and high inflation this year, TCS’s share price held ground relatively well.
TCS shares have returned around 12% over the last 12 months, outperforming the Nifty IT index, which returned around 11% during the same period.
TCS Financial Performance
- Revenue grew by 7.6% YoY in Q2FY25 to ₹64,259 crore
- Operating margin resilient at 24.1% despite cost pressures
- Strong double-digit revenue growth guidance for FY26
TCS reported substantial numbers for the quarter ended September 2024 (Q2FY25), beating street estimates on most parameters.
Despite mounting cost pressures, TCS was positively surprised by maintaining its operating margin at 24.1% in Q2 FY25. The company’s order book also remains healthy, providing revenue visibility. TCS has guided strong double-digit revenue growth for the entire year FY2025.
Industry Trends Favouring Indian IT
Some positive industry trends that bode well for TCS and other Indian IT service providers:
- Accelerating the pace of digital transformation globally
- Increasing technology spending by enterprises worldwide
- Indian IT benefitting from geographical market expansion
- Verticals like BFSI, retail & manufacturing driving tech spends
Digital transformation and the adoption of advanced technologies like cloud, analytics, IoT, automation, etc., continue to gather steam as enterprises worldwide look to boost efficiencies and prepare for the future. This leads to higher technology spending by corporations, benefiting Indian IT service providers like TCS.
Within key verticals, banking, financial services, insurance, retail, and manufacturing industries are especially driving more tech spending currently. Given its substantial presence in these verticals, this plays to TCS’s strengths.
Expanding Indian IT firms like TCS into new geographical markets also bodes well for future growth.
TCS Share Price Outlook for Next Quarter
What can investors expect from TCS’s share price over the next 3 months? Here are some key factors that can influence TCS shares in the coming quarter:
- TCS Q3FY25 results are due in January 2025
- Update on margins guidance amid cost pressures
- Outlook on discretionary spending by clients in key markets
- Management commentary on-demand environment
TCS will announce results for the third quarter of FY2025 (Q3FY25) in January 2025. The broader market sentiment, including trends in the current IPO landscape, may impact investor interest in TCS shares. The company’s Q3 performance, commentary on the order pipeline, future demand trends, and outlook for FY2026 will be key monitorable.
Investors will also closely track TCS’ update on margin guidance for the next fiscal year amid cost headwinds. Commentary on discretionary IT spending by clients in major markets like the US, UK, and Europe will provide cues on the growth outlook.
The demand environment remains steady for Indian IT services firms like TCS despite macro worries in key global markets.
Barring a sharp deterioration in the global economic environment or unexpected events, the TCS share price may continue to hold ground over the next quarter. The target price for TCS shares is in the range of ₹3,383.5-5,995.5 over the next 3-6 months.
Key Positives for TCS Share Price
- Industry-leading position
- Strong client relationships
- Leadership in the digital transformation space
- Healthy order book providing revenue visibility
- Strong balance sheet
- Attractive valuation compared to historical levels
TCS remains well positioned to capitalise on the strong industry growth trends given its competitive strengths:
- Industry Leading Position: TCS is the sector leader in the Indian IT services industry and has a dominant market share. Its brand, scale of operations, and global network give it an edge to tap growth opportunities.
- Client Relationships: TCS has long-standing relationships with marquee global clients across industries. It accounts for two-thirds of Fortune 500 firms among clients. The ability to cross-sell services helps drive growth.
- Digital Capabilities: TCS has built world-class capabilities around digital transformation and next-gen technologies. This enables clients to harness technology to stay competitive.
- Order Pipeline: TCS’s order book remains healthy, providing good revenue visibility for coming quarters. Strong deal wins also indicate a robust demand environment.
- Financial Strength: TCS has a strong balance sheet with high cash reserves, zero debt, and robust cash flow generation. This provides it with flexibility for investments and helps it weather market volatility.
- Attractive Valuation: Despite the recent uptick, TCS shares continue to trade at a reasonable valuation of a sub-30x PE multiple based on FY25 projected earnings.
Key Risks for TCS Share Price
Some of the key risks TCS shareholders should monitor:
- A sharp deterioration in the global economy amid recession worries, soaring inflation, and rising rates can negatively impact IT spending by corporations and, in turn, impact TCS’ growth prospects.
- Any unexpected events like geopolitical tensions or fresh COVID waves can bring growth challenges for Indian IT services firms like TCS.
- Currency volatility remains a key sensitivity for TCS, given that it earns most of its revenues in foreign currencies like USD, Euro, and GBP but reports earnings in INR. Sharp adverse moves can impact profit margins.
- Pricing pressures pose a risk given rising competition from global IT majors. TCS will have to balance pricing versus investments to protect market share.
- Talent retention remains challenging, with the IT sector facing high attrition rates. The inability to retain talent can impact TCS’ execution capabilities and growth plans.
Conclusion
TCS remains a bellwether stock and core portfolio holding for investors, given its leadership position in the fast-growing Indian IT services industry.
While near-term share price movement is complex to predict, given macro uncertainties, TCS’s long-term growth story remains intact, given the multi-year tech investment cycle playing out globally.
The TCS share price will be supported by healthy Q3 results and positive management commentary when it declares results in January 2025. Barring any unexpected global events, the TCS share may continue to hold ground over the next quarter.