TCS crosses ₹10 tn m-cap on IT optimism, share buyback

Tata Consultancy Services Ltd (TCS) became the second Indian company to eclipse ₹10 trillion in market value as continued optimism over demand for technology services and a proposed share buyback drove up its stock for the sixth straight day.

The only other Indian company that has achieved this milestone is Reliance Industries Ltd, which crossed the ₹10 trillion mark last November and is now valued at more than ₹15 trillion.

On BSE, TCS shares rose as much as 8.1% to a record ₹2,727, before surrendering some gains to close at a record ₹2,706.85 and a market cap of ₹10.15 trillion. TCS shares have gained 16.1% in the past six days, and a total of 25% this year.

Like top global technology companies, TCS has benefitted from the rising demand for digital services, the backbone of business continuity amid the pandemic. Its proposed share buyback plan announced on Sunday also helped; buybacks typically improve earnings per share and return surplus cash to shareholders, besides supporting stock price in a sluggish market.

“While customer spending is not necessarily driving the growth seen by IT firms, Indian IT service providers, especially tier-I companies, are well-placed to grab a larger share of the available global IT service market right now. Further, the general outlook on their hiring plans, M&As and internal technology spend have also remained strong, driving the market,” said Pareekh Jain, founder and lead analyst of research company EIIRTrend.

Major announcements in cloud services by the likes of Accenture and Infosys, a large number of new deals and a general urgency across businesses to provide digital touchpoints are fuelling growth, Jain said. TCS being a tier-I IT services front-runner with a large client base, enjoys a clear advantage, he added.

For IT services, the six months to June were expected to be affected by hiccups in shifting to the remote working model and getting relevant clearances from clients. However, as the pandemic advanced, firms across the globe revamped their tech investments to ensure business continuity and backup plans. Performance by Accenture and HCL Technologies, too, have improved investor sentiments.

TCS will announce its fiscal second-quarter earnings on 7 October. According to 10 analysts surveyed by Bloomberg, the company will report a profit of ₹7,754 crore on sales of ₹38,926 crore.

According to the TCS management, its revenue performance dragged in recent quarters due to some large client issues in North American banking and retail segments. The company, however, remains well-placed to capture its fair share of business, given its strong client relationships. According to broking firm JM Financial, TCS remains well-entrenched in continental Europe and is likely to gain further from local incumbents.

“We expect TCS to be a key beneficiary of rising spends on digital (solutions), given the breadth of its offerings, leadership position across key digital areas such as cloud, data and analytics, customer experience, differentiation offered by its products and platform strategy and ability to stitch large complex engagements (for e.g., deal with Walgreens Boots Alliance),” said Nomura Research in a note to its investors.

TCS expects its revenue growth to improve, led by strong deal wins in the first quarter, a robust pipeline and a massive increase in customer engagement, Nomura Research said.

Investor excitement in the IPO of another IT company Happiest Minds was also attributed to the interest in digital services.