Tata's pride losing the spark: Why TCS is faring worst among IT peers and group leaders

Time of India

15-05-2025

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Peer comparison: Where TCS is falling short
Mixed financial performance
Outlook: A recovery in sight?
Technical outlook - For traders
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For years, Tata Consultancy Services TCS ) has been the undisputed crown jewel of the Tata Group. This IT company was equated with stability, consistent growth, and robust returns to investors. However, in the last one year, the technology giant has struggled, underperforming not only its immediate peers -- Infosys (12%), HCL Tech (24%), and Wipro (11%) -- but also fellow Tata Group stocks.TCS has declined 10% in the last one year period. The Nifty IT index is up over 15% in the same period. Among the Tata peers, TCS is placed behind most group companies. Only Tata Motors Tata Elxsi and Tata Technologies fared worse.The root of TCS's underperformance can be traced to a mix of external headwinds and internal challenges. At a macro level, the global technology sector has been grappling with uncertainty. The slowdown in the US and European markets, which are TCS's largest revenue contributors, has hit client spending.Inflation, high interest rates, and geopolitical tensions have also led to cautious IT spending by clients, particularly in discretionary and transformational projects.TCS has also struggled with client-specific issues. The much-touted Bharat Sanchar Nigam Ltd (BSNL) contract, which was a significant revenue contributor, is witnessing a ramp-down, negatively impacting the company's top line.Additionally, the company has reported slower deal conversions and delays in decision-making across multiple sectors, including retail, manufacturing, and healthcare, further dampening revenue growth.Sumit Pokharna, VP-Fundamental Research – IT at Kotak Securities, highlights that TCS's management has acknowledged challenges in client spending across retail, manufacturing, and insurance sectors. "IT services spending growth is likely to reduce below our base case assumption of 4-5% in FY26, with delays in project executions," he noted.While TCS has been facing growth headwinds, its peers have performed better. HCL Tech's focus on high-growth digital transformation and cloud services has paid off to an extent. Infosys has also managed to sustain strong deal wins, while Wipro's aggressive M&A strategy has enabled it to expand its client base.Abhishek Jain, Head of Research at Arihant Capital Markets said "TCS has been struggling to maintain growth momentum in comparison to its peers. Companies like HCL Tech have delivered industry-leading growth for consecutive quarters, which has led to stronger market confidence.TCS's financial performance has not been poor, but it has been far from stellar. In 4QFY25, the company reported dollar revenue growth of 1.4% year-on-year (YoY), but saw a 1% quarter-on-quarter (QoQ) decline. Its constant currency (CC) revenue growth was 2.5% YoY, but the sequential decline of 0.6% underscored the challenges.The company's new deal wins stood at $12.2 billion, well above the guided range of $7-9 billion. Yet, this did not translate into immediate growth due to delays in client spending.Market analysts remain cautiously optimistic about TCS. Sumit Pokharna of Kotak Securities believes that while the company is relatively resilient, it is not immune to sectoral slowdowns. "TCS is more resilient to the slowdown, but not immune to it, in our view," he stated. Pritesh Thakkar of PL Capital pointed out that the BSNL deal ramp-down and client-specific slowdowns will continue to weigh on growth.Incred Equities has cut its target price for TCS, expecting a slower recovery in North America and the financial services segment. 'We expect a US$ revenue CAGR of 3% (vs. 4.5% earlier) and PAT CAGR of 7.5% for FY25-27,' it noted.Ashika Institutional maintained an "Add" rating but lowered the target price to Rs 3,652. "The valuation has become slightly reasonable, but growth certainty remains elusive," the brokerage stated.From a technical standpoint, TCS is currently trading above its 5, 10, 20, 30, and 50-day moving averages (DMAs) but remains below its 100 and 200-DMAs. Analysts said the Relative Strength Index (RSI) is at 67.4, indicating the stock is approaching overbought territory."TCS has formed a 'Bullish Hammer' pattern on the monthly chart and the prices have surpassed the high of the candle which indicates bottoming of the stock price and a trend reversal. Hence, we advise short term traders to buy TCS around Rs 3,630 for potential target around Rs 3,800," said Ruchit Jayantilal Jain, VP, Head – Equity Technical Research at Motilal Oswal.TCS is still a market leader with a diversified client base, and a solid balance sheet. The management's cautious optimism around generative AI (GenAI) and strong deal provide a silver lining. However, the near-term challenges of weak client spending, slower decision-making, and the BSNL ramp-down cannot be ignored.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)