What’s worrying TCS investors

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Already under pressure from FII selling, India’s largest IT exporter Tata Consultancy Services, NSE -4.64% (TCS) issued its Q1 report card, leaving investors concerned about margin erosion amid salary hikes and a slowing of development in Europe. Ambit’s target price of Rs 2,865 on TCS, NSE -4.64% suggests a downside of up to 12%, while Edelweiss’ optimistic target price of Rs 5,000 suggests a 53% rebound.

Since the beginning of 2022, the value of every Nifty IT stock has decreased by double digits. TCS is the best performer of them all, with a YTD decline of 12.65%.

Although TCS’s revenue rise of 3.5% QoQ in constant currency terms was expected, analysts at Ambit Capital noted margins missed expectations significantly, and the company’s headline commentary remained the same.

Motilal Oswal, a domestic brokerage with a target price of Rs 3,730 (up 14% from Friday’s closing price), believes this is early evidence of industry comments becoming more realistic, as opposed to the existing notion of little impact on tech spending.

According to the brokerage, the current stock price adjustment presents a solid entry point for long-term investments. It also maintained its buy recommendation for TCS with a revised price objective of Rs 3,650.

With an “add” recommendation and a target price of Rs 3,620, HDFC, NSE 0.44 percent Securities claimed that TCS’s strong performance metrics, full-stack portfolio, and industry drivers are still present.

Although Q1 results fell slightly short of expectations, Emkay Global stated it is still cautiously hopeful. “As a consequence of the Q1 loss, we reduced our EPS prediction for FY23-25 by 1-3 percent. The short-term demand situation is still favourable, but macro-uncertainties have an impact on valuations. With a new Target Price of Rs3,200 at 23x Jun’24E EPS (down from Rs3,250), we maintain our Hold recommendation “It read.

According to Edelweiss, one of the experts who are most upbeat about TCS, the demand environment is still solid despite the state of the economy. “We anticipate more substantial margins throughout the year. We think the pipeline and strong demand will sustain ongoing profitability expansion in the following quarters “It read.

According to historical patterns when growth has outpaced, Infosys, NSE -2.73 percent is anticipated to reduce its valuation gap with TCS.

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