TCS hits 52-week high as it plans to consider share buyback on October 11


Brokerage firm Morgan Stanley believes that the share buyback plan was already anticipated by the market for the last two quarters and hence it does not assure outperformance of the stock.

Shares of Tata Consultancy Services opened one per cent higher and hit a 52-week high of Rs 3,659 on October 9 after the company announced plans to consider share buyback along with July-September results on October 11. However, the stock soon fell to trade slightly above its high.

The stock’s reaction is in line with the views of foreign brokerage Morgan Stanley, which believes buybacks are unlikely to outperform the stock.

Morgan Stanley also feels that the announcement of buyback plans does not provide enough assurance to stakeholders as the market had already anticipated this for the last two quarters.

The buyback announcement by TCS comes after two other information technology companies, Infosys and Wipro, completed their share buybacks earlier this year. Infosys began its buyback after buying 6.04 crore shares for Rs 9,300 crore in February, while Wipro announced its biggest-ever share buyback of Rs 12,000 crore in June.

Moreover, in a scenario where quarterly earnings of information technology companies have been under pressure due to slow pickup in order wins, the Street is more likely to remain focused on TCS’s July-September financial performance.

At 09.23 am, TCS shares were trading 0.3 per cent higher at Rs 3,633.60 on the National Stock Exchange.

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Foreign brokerages also expect TCS to show marginal improvement in its revenue growth on a sequential basis in the September quarter as order intake for the IT major is likely to remain strong.

Analysts at B&K Securities estimate 1 per cent sequential earnings growth for TCS in the second quarter, while analysts at Jefferies expect 20-40 basis points margin expansion.

Despite strong orderbook expectations, Morgan Stanley’s earnings estimate for TCS is below consensus for FY24-25. The company also considers pressure on margins and expensive stock valuations as major hurdles for the IT company.

“The premium, below its average over the last five years, makes the risk-reward unfavorable for TCS,” the brokerage said in its report. Morgan Stanley also has ‘equalweight’ rating on the stock with a price target of Rs 3,730, implying an upside potential of only 3 per cent from Friday’s close.

Read this also TCS will consider share buyback with second quarter results, board meeting to be held on October 11

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