Shares of India’s top technology giant Tata Consultancy Services (TCS) jumped over 4 per cent in early trade on Friday, as investors cheered its Q3 results and guidance on early signs of demand revival.
The Nifty IT index rose nearly 3 per cent on Friday, driven by positive commentary from TCS. All constituents of the index saw positive movement, with TCS, LTI Mindtree, Tech Mahindra, Wipro, Infosys, and Persistent Systems surging up to 4 per cent.
While the broader Indian stock market traded lower amid weak global cues, the Nifty IT index remained in positive territory, standing out as the only sectoral index to show gains, reflecting overall strong investor sentiment in the sector.
At the time of writing, TCS shares were trading at Rs 4,208, up 4.19 per cent or 169.15 points from the previous day’s close at Rs 4,038.85.
The IT major reported a 12 per cent rise in its consolidated net profit for the December quarter at Rs 12,380 crore compared to Rs 11,058 crore in the year-ago period. The company’s consolidated revenue from operations increased by 5.6 per cent year-on-year (YoY) to Rs 63,973 crore. In constant currency terms, revenue grew by 4.5 per cent.
However, the operating margin fell by 50 basis points YoY to 24.5 per cent. It increased by 40 basis points on a quarterly basis.
In a press conference on Thursday, TCS CEO K Krithivasan said that the company was seeing more confidence in discretionary programmes in the coming years.
Optimism Grows Amid Strong Forecasts
TCS generated renewed optimism among brokerages following a positive commentary and solid deal wins in what is typically a slower quarter. Management pointed to early indications of a rebound in discretionary spending during the October-December period, leading brokerages to forecast potential margin improvements by FY26.
Hong Kong-based CLSA upgraded the stock to ‘outperform’ and raised its price target to Rs 4,546, citing improved demand commentary and a solid growth in the order book. The brokerage firm also highlighted artificial intelligence (AI) as a growth driver for TCS in the future.
“We maintain our ADD Rating on the stock with revised target price of Rs 4,589(vs 4,470 earlier) at PE of 26x on FY27E EPS,” Centrum Broking said.
Nuvama Institutional Equities, in its report, said the management commentary was most positive in two years, as it guided to higher growth in CY25 than CY24, citing early signs of discretionary spends. The brokerage highlighted strong deal wins and management's efforts to mitigate the impact of the BSNL revenue loss as positive drivers for the company. It maintained a 'BUY' rating on the stock, marginally raising the target price to Rs 5,200. TCS's valuations continue to appear attractive compared to peers like Infosys and HCL, the brokerage said.
Prashanth Tapse, Senior VP (Research) at Mehta Equities, said investors should wait and watch as the industry is currently going through a tough phase due to high interest rates and rising geopolitical conflicts globally. This has left investors waiting for signs of a revival in IT spending, which has yet to pick up.
“We also need to wait and watch for the actions of Donald Trump, who will take office as the new US President on January 20th, 2025. His policies could reignite the debate around H-1B work visas, which are heavily used by Indian IT firms to send engineers and developers to their biggest market, the US. In the long term, we remain optimistic, although short-term volatility is expected to persist in the overall IT space,” he said.
TCS announced a third interim dividend of Rs 10 and also a special dividend of Rs 66 per share of Rs 1 face value each of the company. This amounts to a total dividend of Rs 76 per share. While the record date for this purpose of dividend distribution is set on Friday, January 17, 2025, the third interim dividend and the special dividend shall be paid to the equity shareholders of the company on Monday, February 3, 2025.
