TCS Shares Hit Over 7-month high in a Volatile Market; Should you Buy, Hold or Sell?

Shares of Tata Consultancy Services (TCS) rose hit an over seven-month high of Rs 3,498 on the BSE in Friday’s intra-day trade as investors turn to defensive stocks in a volatile market.

The Nifty IT index traded positive on Friday in an upbeat market. Besides TCS, L&T Technology(up 0.68 per cent), Persistent Systems(up 0.53 per cent), Infosys(up 0.39 per cent) and Wipro(up 0.11 per cent) were among the top gainers.

Tech Mahindra(down 0.7 per cent), Coforge(down 0.58 per cent), HCL Technologies(down 0.42 per cent), LTIMindtree Ltd(down 0.31 per cent) and MPhasis(down 0.07 per cent) were the top losers on the index.

The Nifty IT index was up 0.19 per cent at 30624.65 at the time of writing this report.

Stock Price History

The stock of the information technology major was trading higher for a third straight day, rising 4 per cent over this period. It was quoting at its highest level since May 18, 2022.

In the past one month, TCS has gained 5 per cent as compared to a 1.8 per cent decline in the S&P BSE Sensex, while in the last three months, it has rallied 9 per cent versus a 1 per cent fall in the benchmark index. Though, it is down 9 per cent in the past one year as against a 2.3 per cent rise in the Sensex.

What Should Investors Do Now?

Motilal Oswal Financial Services believes TCS, among their IT services coverage, is the best positioned to ride out the near-term moderation in technology spending, on account of macroeconomic stress in developed economies.

“With tech spending shifting toward cost efficiency (vs focus on transformation over the last two years), TCS revenue growth is expected to outperform its peers (FY24 at 9.2 per cent YoY CC vs large cap coverage median of 8.5 per cent YoY) on account of its industry leadership in cost optimization and strong order book. Further, its better operational efficiencies is expected to drive up its profitability, leading to 20 per cent YoY rupee PAT growth in a tough year, ” the brokerage said. It reiterated the Buy rating on TCS with a target price of Rs 3,950 (29xFY24 and 25xFY25).

Analysts at ICICI Securities expect the company’s margins to improve from FY23 onwards due to utilization improvement, moderation of sub-contractor costs. The brokerage builds in margin expansion of 110 bps over FY23-25.

TCS has maintained it will exit FY23 with a EBIT margin of 25 per cent in Q4. The company indicated that the margin improvement for the medium term would be driven by improved utilisation, moderation of sub-contractor costs & moderation of attrition. It said that pricing is one of the levers for margin improvement but acknowledged that it will be challenging to get price increases in the current environment.

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