TCS Stock Check: Is now the right time to buy this IT major? Here’s what experts suggest

IT major Tata Consultancy Services (TCS) reached a record high of ₹4,564.75 on August 20, marking a nearly 38 percent increase from its 52-week low of ₹3,313 on November 1, 2023. The stock's recent surge follows strong Q1FY25 earnings and positive brokerage recommendations.

Over the past year, TCS has gained over 33 percent and it has risen more than 20 percent year-to-date in 2024, with positive returns in 5 of the 8 months so far. In comparison, the Nifty IT index has increased over 34 percent in the last year and nearly 17 percent year-to-date in 2024.

In August alone, TCS has risen over 3 percent, continuing its upward trend for the third consecutive month. The stock had earlier surged 12.3 percent in July and 6.3 percent in June, following a period of correction with declines of 4 percent in May, 1.4 percent in April, and 5.3 percent in March. The start of the year was more favorable, with gains of 7.65 percent in February and around 1 percent in January 2024.

Meanwhile in long term, it has given multibagger returns, surging 106 percent, in 5 years.

Q1 earnings

TCS reported an 8.72 percent year-on-year increase in its consolidated net profit for Q1FY25, reaching ₹12,040 crore, compared to ₹11,074 crore in the same period last year. This performance reflects a solid financial outcome despite ongoing market uncertainties.

Revenue for the quarter grew 5.4 percent year-on-year to ₹62,613 crore from ₹59,381 crore in the year-ago period. Meanwhile, on a quarter-on-quarter, it witnessed an increase of 2.2 percent, driven primarily by growth in the India business segment. In constant currency terms, revenue showed a 4.4 percent year-on-year increase, highlighting the company’s strong operational performance.

The company's margins improved to 24.7 percent, marking a 1.5 percent increase from the previous year. This margin expansion was notable given the salary hikes announced during the quarter, indicating effective cost management and operational efficiency.

CEO K Krithivasan stated that while FY25 is anticipated to outperform FY24, it remains too early to determine if the current growth momentum is sustainable due to unchanged market conditions. The company's total contract value (TCV) signed during the quarter amounted to $8.3 billion, reflecting an 18.6 percent decline year-on-year and a 37 percent drop sequentially. This decrease follows a record $13.2 billion TCV in previous March quarter (Q4FY24), highlighting ongoing volatility in contract signings.

Following the recent recovery and improvement in earnings, market experts assess whether its bullish trend will continue. Below, we explore technical and fundamental analysis from leading experts to provide a comprehensive outlook on TCS' stock performance.

Technical outlook

Om Mehra, Technical Analyst, SAMCO Securities

TCS remains firmly in a bullish trend, despite hovering near its all-time high. Following the formation of a cup-with-handle pattern, the stock has surged significantly. It is trading above both its 20-day and 50-day moving averages. In recent days the stock has witnessed a significant increase in delivery volume. The Nifty IT index has also reached a 52-week high. However, the appearance of a shooting star pattern on the daily chart may temper the bullish momentum in the short term. The support levels remain at ₹4,400 and 4,300 level. A pullback to these zones presents an opportunity for long-term accumulation.

Gaurav Bissa, VP, InCred Equities

TCS has been one of the strongest largecap IT names and also one of the first to make a fresh life high. After a small consolidation it witnessed a fresh breakout above 3,980-4,000 levels which propelled it higher. This zone is expected to act as a strong support in the medium term. On the other hand, it witnessed a small swing high breakout retest recently paving the way for a move towards 4,800-5,000 levels. The immediate support is seen at 4,230 levels. RSI is trading shy of 70 levels and a sustained move above 75 is likely to give a strong push to TCS on the daily charts which can result in the start of a fresh uptrend.

Rajesh Palviya, SVP - Technical and Derivatives Research at Axis Securities

TCS is showing an upward trend across all time frames, with a series of higher highs and higher lows. It recently reached an all-time high at 4,565 levels, indicating a bullish sentiment. On the weekly chart, the stock has formed a significant "Rounding Bottom" pattern, suggesting a breakout that could push the stock higher to the 4,600-5,100 levels in the coming weeks.

Additionally, the stock has regained the 20-day SMA and bounced back strongly, confirming the bullish trend. Short-term support levels are located around 4,300-4,150, so any minor pullback to this zone could be seen as a buying opportunity for traders. RSI is in positive terrain across all time frames, indicating rising and sustained strength.

Fundamental view

Macquarie: Brokerage firm Macquarie has added Tata Consultancy Services (TCS) to its "Marquee idea list," maintaining an "outperform" rating and raising its target price to ₹5,740 from ₹4,750. Following a briefing where TCS showcased its investments in AI and various use cases, the brokerage highlighted TCS's development of a legacy modernisation framework leveraging Artificial Intelligence.

It also noted that AI could significantly enhance legacy modernisation with increased accuracy and reduced costs, potentially opening a large market for such services. The brokerage believes TCS’s extensive service portfolio and global presence minimise growth risks.

While Macquarie has kept its earnings estimates for TCS unchanged, it anticipates a boost in medium-term demand due to AI-driven legacy modernisation programs that lower costs and risks. Consequently, the brokerage has adjusted its valuation of TCS to 35 times FY26 earnings, up from 29 times previously.

TCS's impressive stock performance and strong earnings are bolstered by positive technical indicators and favorable fundamental analyses. As the company continues to invest in AI and modernise legacy systems, its outlook remains optimistic despite short-term volatility in contract signings. Market experts and analysts predict continued growth, reflecting confidence in TCS's long-term prospects.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.