Continuing its bearish trend, shares of Tata Consultancy Services (TCS), the country's largest IT firm, fell 1.10% to ₹3107.85 in Tuesday's trade. The stock has been declining steadily for the last eight trading sessions, losing nearly 7.3% of its value, and from its February 2023 peak value of ₹3,575, the stock has corrected by almost 11.65%.
The recent fall has pushed the stock to trade at a five-month low, and at current levels, it is just 6.47% away from its 52-week low of ₹2,926, which it last reached in September last year.
The underperformance of the stock has been attributed to a range of factors, including fears of a global recession sparked by the fall of major banks in the United States and Europe. Indian IT companies rely heavily on these two markets, which make up more than 60% of their revenues.
For TCS, North America contributed 53.7% of its revenue in Q3 FY23, while the Europe accounted for 30.1%. In terms of revenue distribution by industry domain, the banking and financial sector is a major contributor. Revenue generated from this sector accounted for 31.5% of the total company's revenue during the December quarter, followed by retail and CPG at 15.7%.
Industry experts are concerned that the recent upheaval in the global financial system could result in a decrease in the number of new deals.
Further, the unexpected exit of TCS's CEO and MD, Rajesh Gopinathan, has also contributed to the stock's underperformance. The company has appointed K. Krithivasan, 59, as its CEO-designate.
Gopinathan has been with TCS since 2001 and has held multiple leadership positions, including that of CEO. Rajesh Gopinathan was appointed at the CEO position in 2017 at the age of 47.
"Mr Gopinathan’s departure from TCS is surprising, as he has led the company for only six years and was expected to continue for the long term given his age (52 years)."
"Moreover, while the company’s growth has trailed peers like Infosys recently, it has handled external pressures, including a transition to digital delivery and the Covid impact, relatively well despite its size," said Motilal Oswal in its recent company update report.
"Our initial feedback points to a positive internal and external view of Mr Krithi as a business leader. Notably, given his leadership of the unified BFSI vertical since 2017, he is unlikely to face the external questions on client relationships that Mr Gopinathan faced as CFO of TCS in 2017," the brokerage added.
Motilal continues to see TCS as the best play in the IT services space in the current environment. It maintained its positive outlook on the stock with a target price of ₹3,180 apiece.
However, the brokerage listed key downside risks that could negatively impact the stock. These risks include the continued increase in interest rates by major central banks, sluggish economic growth, and heightened geopolitical tensions.
TCS, which kicked off the Q3 FY23 earnings season, delivered decent numbers, with its net profit growing 11% YoY to ₹10,883 crore. The company's overall revenue rose 19.1% to ₹58,229 crore for the reporting quarter.
TCS is currently ranked as the second-most valuable company among the 500 most valuable companies in India based on their market capitalization, according to the Burgundy Private Hurun India 500.
42 analysts polled by MintGenie on average have a 'hold' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
