TCS shares declined nearly 2% during Thursday's trading session, slipping to an intraday low of ₹2,016 before recovering some ground. According to The Financial Express, the stock has now fallen nearly 40% over the past year, significantly outperforming the 8.7% decline in the Nifty 50. The weakness comes as TCS has touched a 52-week high of ₹3,414 and a 52-week low of ₹1,976.80, with the stock currently commanding a market capitalisation of around ₹7.36 lakh crore. The stock has shed as much as 55.2% from its record high of ₹4,409 registered in August 2024, with TCS declining 0.3% so far in July while the NSE benchmark Nifty 50 advanced 0.6%. As per The Financial Express, TCS is the first information technology company to kickstart the quarterly earnings season today, making its results particularly significant for the sector's outlook.
According to Kotak Institutional Equities, "We believe that Q1FY27 will be weak on revenues, impacted by the West Asia crisis and elevated productivity pass-throughs in managed services contracts." The brokerage expects TCS to report flat revenues, while Infosys will likely underwhelm at 1% organic growth quarter-on-quarter. Axis Securities also expects topline growth of 1.1% QoQ, supported by growth in BFSI, HiTech, and benefits of rupee depreciation. EBIT margins are likely to decline by 98 bps QoQ due to wage hikes and continued AI investments. Operating profit is expected to decline 3% to ₹17,284 crore versus ₹17,870 crore, with EBIT margin likely to contract to 24.19% from 25.27% in the previous quarter. Net profit is seen 2% lower at ₹13,485 crore versus ₹13,718 crore, with employee attrition expected to rise to 11.5%. As per Seema Srivastava, Senior Research Analyst at SMC Global Securities, the upcoming financial results are expected to be subdued due to a cautious global demand environment and continued slowdown in discretionary IT spending.
According to estimates compiled from six brokerages, TCS is expected to report around 13% year-on-year revenue growth and a 4% increase in net profit for the June quarter. However, on a sequential basis, growth is expected to remain almost flat, indicating that demand conditions continue to be challenging. Constant-currency revenue growth is expected to be largely flat, reflecting delayed discretionary technology spending, macroeconomic uncertainty and cautious client budgets. Sectors such as banking, financial services and insurance (BFSI) and consumer businesses are expected to support growth, while weakness in communications, manufacturing and parts of North America is likely to weigh on overall performance. As per Economic Times citing brokerage estimates, some brokerages expect TCS to report total contract value (TCV) of around $8-10 billion, which would indicate whether enterprise technology spending remains resilient despite a challenging macro environment.
AI remains one of the biggest talking points for the IT sector, with companies investing heavily in AI capabilities and new service offerings while clients increasingly demand productivity gains and cost savings. This could weigh on margins in the near term even as AI creates long-term growth opportunities. Operating margins are expected to come under pressure during the quarter due to wage hikes implemented from April and continued investments in AI capabilities. Some of the impact could be offset by a weaker rupee and productivity gains, but analysts still expect margins to decline sequentially. India's IT services companies continue to face a difficult operating environment, with Nomura noting that the sector is grappling with uncertainty around global economic growth and client spending due to geopolitical tensions, and increasing competition as companies use AI to deliver services more efficiently. The brokerage believes FY27 could remain another subdued year for large-cap IT companies, although long-term opportunities remain intact.
TCS currently has 32 buy calls, 11 hold calls, and six sell calls, as per Bloomberg data, with an average target price of ₹2,655.47 and an implied upside of 29.1%. However, according to Harshal Dasani, Business Head at INVAsset PMS, TCS opening nearly 2% lower ahead of its Q1 results does not automatically make the stock a buy-on-dips opportunity. The fundamental setup still warrants caution, with the June quarter expected to remain muted amid weak demand conversion and a lack of meaningful recovery in discretionary technology spending. More than the quarterly numbers, investors are expected to focus on management commentary, with analysts closely watching TCS's outlook on AI adoption, demand trends in the US, discretionary technology spending, pricing pressure, deal wins and the company's pipeline for the rest of FY27. As the country's largest IT exporter, TCS's management commentary on demand, AI adoption, client spending, hiring plans and large deal momentum is likely to influence investor sentiment not just for TCS, but also for peers such as Infosys, HCLTech, Wipro and Tech Mahindra, whose results will follow over the coming weeks.
