TCS Shares Surge on Q1 Results

After India’s leading IT services provider reported first-quarter earnings that showed early hints of resurgence for a sector struggling with slow demand, Tata Consultancy Services’ shares rose about 3% on Friday

The IT index reached its most significant point since January 2022, rising 3.4% due to the gains.
Analysts at Macquarie believe that the worst is behind the company, as it has resumed development in its critical North American market.

“(An) Interest rate cut cycle, likely in the second half of the year and a potential thaw in decision making by U.S. corporates post elections in November 2024 could provide a fillip to demand,” Nomura said in a note.

Since the fiscal year (FY) 2023, the demand for services from Indian IT companies has been adversely affected by high interest rates and geopolitical risks. Globally, clients are awarding more minor agreements with lower margins and reducing discretionary tech spending.

According to analysts at Jefferies, TCS’ expansion in all verticals, except telecom, and its seven-quarter high in net hiring are indicators of a revival.

In a post-results media call, Chief Executive K Krithivasan expressed his expectation that FY25 will be more successful than the previous fiscal year. However, he also noted that market conditions are pretty volatile.

The median price target for the stock was increased by at least 11 brokerages following the results, from 4,262.50 a month ago to 4,309 rupees.

The company’s most recent price was 4,043 rupees, representing a 3% increase.

Five analysts have upgraded their rating from “hold” to “buy.” Infosys, the company’s peer, is also rated “buy” on average, while Wipro (WIPR.NS) is rated “hold.”

TCS’ year-to-date gains increased by over 8% due to the day’s movement, in contrast to the IT index’s 7.5% increase. Since it disclosed its quarterly results in April, its shares have declined by more than 1%.

According to LSEG estimates, TCS’ price-to-earnings (P/E) ratio (last 12 months) of 30.43x is higher than that of its competitors, Infosys, Wipro, and HCLTech, which traded at a P/E of 25.5x-26.2x.