TCS Stock Soars 4% as Brokerages Turn Bullish on Strong Demand Revival

Tata Consultancy Services (TCS) saw its stock soar by over 4% in early trading on January 10, driven by strong commentary from the management and growing optimism among brokerages. Signs of an early demand revival in Q3 FY25, along with TCS's impressive deal wins, have prompted analysts to revise their outlook for the company, forecasting stronger growth in CY25 and FY26 compared to CY24. At 9:18 AM, TCS shares were trading at Rs 4,218.30 on the NSE, reflecting the market's positive reaction to the news.

The company, which was the first IT firm to report its Q3 FY25 earnings, reported a robust order book for the quarter, with a total contract value (TCV) of $10.2 billion, the highest in five years. Despite the seasonally weak period due to holidays in key markets such as North America, TCS saw a 25.93% year-on-year increase and an 18.6% sequential growth in TCV, indicating strong demand resilience.

TCS’s management attributed the positive results to a shift in deal dynamics, including shorter deal cycles and a better mix of wins. These factors, coupled with easing interest rates, softer inflation, and reduced political uncertainty post-US presidential elections, have spurred confidence in the company's ability to deliver stronger performance in the coming years. The upbeat commentary from the management was further supported by an optimistic outlook for discretionary spending recovery, which is expected to improve margins by FY26.

Brokerages quickly reacted to the positive earnings report. CLSA upgraded TCS's stock to 'outperform' and raised its price target to Rs 4,546, citing improved demand commentary and a sharp increase in the order book. The firm also highlighted artificial intelligence (AI) as a key growth driver for TCS moving forward. Similarly, Nuvama Institutional Equities expressed its optimism, calling TCS's management commentary the most positive in two years. Nuvama raised its price target to Rs 5,200, retaining a 'buy' rating, while also highlighting the company's efforts to offset BSNL revenue impacts as a significant positive factor.

Jefferies, too, was upbeat about TCS's prospects, projecting a 9% compound annual growth rate (CAGR) for earnings per share (EPS) from FY25-27, driven by margin improvements after the BSNL ramp-down. The brokerage maintained its 'buy' rating and raised its price target to Rs 4,760. Analysts across the board pointed out that the stock's attractive valuation further adds to its appeal.

However, not all brokerages were as optimistic. Nomura maintained a 'neutral' rating with a price target of Rs 4,020, expressing caution about TCS's growth visibility, especially regarding the challenge of replacing lost BSNL revenues in FY26. Similarly, HSBC acknowledged that TCS’s performance might have bottomed out but expressed concerns about downside risks to FY26 consensus, citing the company's higher exposure to Europe and the absence of BSNL revenues.

Conclusion

TCS's strong Q3 FY25 performance and the management's positive outlook for FY26 have sparked optimism among brokerages, leading to a surge in its stock price. While most analysts foresee a favorable growth trajectory for the company, with improved demand and margin potential, some remain cautious about the challenges of replacing BSNL revenues and the risks of underperforming its peers in the future. Overall, TCS's positive outlook and impressive deal wins have bolstered confidence in its growth prospects for the next few years.