Last updated: February 03, 2023, 1:43 PM IST
Shares of Tata Consultancy Services (TCS) rose to hit a seven-month high of Rs 3,498 on the BSE in Friday’s intraday trading as investors turn to defensive stocks in a volatile market.
The Nifty IT Index was trading positive on Friday in an upbeat market. In addition to TCS, L&T Technology(plus 0.68 percent), Persistent Systems(plus 0.53 percent), Infosys(plus 0.39 percent) and Wipro(plus 0.11 percent) were among the biggest winners.
Tech Mahindra (down 0.7 percent), Coforge (down 0.58 percent), HCL Technologies (down 0.42 percent), LTIMindtree Ltd (down 0.31 percent), and MPhasis (down 0.07 percent) were the largest losers on the index.
The Nifty IT index was up 0.19 percent at the time of writing this report to 30624.65.
History of stock prices
Shares of the IT major traded higher for a third straight day, rising 4 percent over the period. It was trading at its highest level since May 18, 2022.
Over the past month, TCS is up 5 percent compared to a 1.8 percent drop in the S&P BSE Sensex, while it’s up 9 percent over the past three months versus a 1 percent drop in the benchmark index. Although, it’s down 9 percent over the past year versus a 2.3 percent rise in the Sensex.
What should investors do now?
Motilal Oswal Financial Services believes that, among their IT services coverage, TCS is best positioned to weather the near-term moderation in technology spending due to macroeconomic stress in developed economies.
“As technology spending shifts toward cost efficiency (versus focus on transformation over the past two years), TCS’s revenue growth is expected to outperform its peers (FY24 at 9.2 percent year-over-year CC vs. market leadership in cost optimization and a strong order book. Furthermore, the improved operational efficiency is expected to drive profitability, leading to 20 percent year-over-year growth in a difficult year,” the brokerage said. It reiterated the Buy- rating on TCS with a target price of Rs 3,950 (29xFY24 and 25xFY25).
Analysts from ICICI Securities expect the company’s margins to improve from FY23 on the back of better utilization rates and moderation in subcontractor costs. The brokerage is building in margin expansion of 110 basis points over FY23-25.
TCS has maintained it will exit FY23 with an EBIT margin of 25 percent in Q4. The company indicated that the medium-term margin improvement would be driven by improved utilization, moderation in subcontractor costs and moderation in churn. It said pricing is one of the levers for margin improvement, but acknowledged that it will be challenging to implement price increases in the current environment.
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