Mixed views on TCS after tepid results

Mumbai: Shares of Tata Consultancy Services plunged 6% on Monday, emerging as the biggest Nifty loser, following a weaker-than-expected earnings performance for the quarter ended September 30.

The weakness in stock, which closed at ₹3,687.95 on the NSE, and its technology peers put a lid on the gains in Nifty, which surpassed the 18,000-mark for the first time ever. TCS has a 5.12% weightage in the Nifty.

Brokerages have a mixed view on TCS following the result. CLSA, Credit Suisse and Macquarie have an outperform rating on the stock while Goldman Sachs has a buy rating. IIFL and Kotak Institutional Equities have an add rating. Emkay and IDBI Capital have hold rating while Investec retained its sell recommendation on TCS.

Some brokerages have cut earnings estimates citing weak near-term margin outlook.

Trimming earnings estimate for the ongoing and next financial year, CLSA said it likes TCS' strong cash generation and a liberal capital return policy but at 33 times FY23 estimated earnings per share, incremental upside could be limited.

So far this year, TCS shares have gained 37% while the Nifty has gained 25%.

Macquarie cut earnings estimates by 3% but added that TCS remains well positioned to capture the demand strength given its investments in capability-building.

Some of the brokerages reduced target prices to factor in the soft earnings print but others revised the target price higher due to rolling forward of valuations.

Meanwhile, Investec is bearish on the stock. TCS' commentary on margins implies a potentially weaker second half for the rest of the industry, leading to possible cuts on earnings estimates across most stocks, said Investec.