Tata Consultancy Services (TCS) recently reported earnings for the January-March quarter that didn’t quite meet expectations, but analysts remain optimistic about the company’s future. With a robust deal pipeline and forecasts for margin recovery by FY26, TCS is still seen as a strong player in the tech sector.
Strong Deal Pipeline Promises Future Growth
Despite the earnings shortfall, many financial experts are highlighting TCS’s ability to navigate challenges. The company achieved a total contract value (TCV) of $12.2 billion in the last quarter, marking an impressive 20% increase from the previous quarter. For the full fiscal year FY25, TCS’s TCV reached $39.4 billion, reinforcing confidence in its resilience amid economic fluctuations.
- Total Contract Value (TCV) for Q4: $12.2 billion
- TCV for FY25: $39.4 billion
- Quarterly Growth: 20%
Analysts Remain Bullish Despite Short-Term Challenges
Motilal Oswal Financial Services pointed out that while there are short-term revenue risks due to a slowdown in discretionary spending and the phasing out of the BSNL project, they anticipate a margin recovery in FY26. This recovery is expected to stem from effective cost management and a rebound in client spending. The brokerage noted, “Although margins disappointed in the last quarter, the winding down of the BSNL project should lead to reduced third-party costs. We project margins to improve to 25.3% in FY26,” setting a target price of Rs 3,850 for TCS shares.
Temporary Slowdown in Tech Spending
HDFC Securities echoed the sentiment that the current slowdown in discretionary tech spending is a fleeting issue rather than a fundamental shift in the market. They emphasized TCS’s diverse wins in deals during the March quarter, indicating that the underlying demand remains strong.
On the National Stock Exchange, TCS shares closed down 0.3% at Rs 3,238. However, several brokerages believe that there is significant potential for growth at these prices. Antique Broking upgraded its rating to ‘buy’ from ‘hold’, noting a 30% correction from the stock’s peak and forecasting a 28% upside. They stated, “Client budgets are stable; while discretionary spending is delayed, it hasn’t been canceled. We anticipate a gradual recovery starting in the second half of FY26.”
Target Price Adjustments Reflect Optimism
Prabhudas Lilladher also upheld a ‘buy’ recommendation, increasing its target price to Rs 4,810. They predict margin growth in the upcoming fiscal year, buoyed by stronger performance in core markets and less impact from the BSNL contract.
TCS’s leadership has acknowledged a slight uncertainty in demand since March 2025, but reassured stakeholders that no significant client projects have been scrapped. While industries such as retail, travel, and automotive may face challenges due to tariffs and broader economic issues, the BFSI sector remains stable, with only minor weaknesses in insurance.
Margin Pressures and Future Outlook
The company indicated that the dip in margins during the fourth quarter was influenced by strategic decisions, including a merit-based promotion cycle that took effect on January 1, which reduced margins by 100 basis points. Additionally, higher marketing and travel expenses added 60 basis points of pressure, although currency gains offered some relief.
In conclusion, while TCS faces some short-term hurdles, analysts believe the company is well-positioned for a recovery. With solid client relationships, a healthy deal pipeline, and a commitment to disciplined cost management, TCS is set to navigate the challenges and emerge stronger in the coming years.
