Market capitalisation math: TCS = Infosys + Wipro + HCL Tech + Tech Mahindra

NEW DELHI: Cementing its position as a market leader, Tata Consultancy Services ( TCS) market capitalisation nearly equalled that of market capitalisation of other frontline IT stocks such as Infosys, Wipro, HCL Technologies and Tech Mahindra on Monday.

In the past couple of trading sessions, market capitalisation of TCS has just fallen tad short of m-cap of other IT majors such as Infosys, Wipro, HCL Tech and Tech Mahindra (refer table below).

"On 27 June 2014, TCS' market capitalization at Rs 469,440.82 crore was almost at par with all of its four nearest competitors' combined market cap of Rs 473,225.58 crores," said Nitin Prakash Daga, Vice President - Research at Microsec Capital Ltd.

"Despite a large base, the volume growth, reported by TCS, remained amongst the top in the industry for last several quarters. Furthermore, the company continued to add the highest business, in value terms, during this tenure," he added.

After rallying over 70 per cent in the previous calendar year, Tata Consultancy Services Ltd (TCS), which is also India's largest software services provider has rallied smartly in the year 2014 (up 12%) as well, but the pace has slowed down from that of last year (2013).

The stock rose 1.2 per cent in trade on Monday to hit its fresh 52-week high of Rs 2427. The stock finally closed 0.8 per cent higher at Rs 2419.45.

Since Oct 26, 2012 (twenty months back) when TCS's market cap equalled the combined market-cap of Infosys, Wipro and HCLT, TCS's stock has materially outperformed only Infosys, said a JP Morgan report.

Yet today (twenty months later), TCS's market-cap is equal to the combined market-cap of the next four (Tech Mahindra is the new addition in the equation).

Will the dream run continue for TCS?

Apart from being the market leader, Tata Consultancy Services (TCS) remains one of the top stock bets in the IT space by most market analysts. TCS at current juncture as well, enjoys the industry best employee metrics and may continue to grow its financials on a brisk pace.

The India IT sector has fallen off the radar in the wake of a strong wave of preference for domestic sectors (such as financials and industrials) due to the decisive mandate in the national elections for the BJP-led NDA.

Among the Indian IT players, we continue to rate Infosys, Tech Mahindra, and HCL Technologies as 'Overweight' and we think that TCS's valuation looks a tad punchy in the near term (at 21x forward P/E), JP Morgan said in a report.

But, the global investment bank sees it as a core strategic holding in portfolios as gains from leadership compound over time. Even though there is a sectoral rotation happening in Indian markets, but that is more of a temporary phenomenon, explains JP Morgan report.

The IT sector is trading at the valuations of 11-12 times, barring TCS. The sector was always looking attractive from the valuation point of view. Analysts' expect TCS to continue replicate its historical outperformance in the upcoming years as well.

In addition, the company's strong focus on digital opportunities and maintained profitability may keep driving its performance in the long run.

"Based on FY2015E earnings, we rated the stock a BUY with target price of Rs 2,458 per share. At that juncture, we advise the short term investors to book part profits, but investors with a time horizon of more than six months should hold the stock for expectation of higher returns," added Daga of Microsec Capital.