TCS loses valuation premium to Infosys, HCLTech after 14 years on top

TCS loses its premium edge as slower profit growth and margin pressure pull its P/E below rivals for the first time since 2011

After being the industry bellwether for more than a decade, information-technology (IT) major Tata Consultancy Services’ (TCS’) equity valuation has slipped below that of peers such as Infosys and HCLTech. 

TCS is trading at a trailing price-to-earnings (P/E) multiple of 22.5X, lower than Infosys’ 22.9X and HCLTech’s 25.5X. 

This is a reversal for the country’s largest IT services exporter, which led industry valuation for nearly 14 years —  between 2011 and early this year. In those years, TCS traded, on average, at a trailing P/E multiple of 25.5X, at nearly a 15 per cent premium to the industry average of 22.2X. 

TCS’ average valuation during 2011 and early 2025 was 18 per cent and 38 per cent higher than Infosys’ and HCLTech’s average P/E multiple in the period. 

There has also been a sharp decline in the Tata group firm’s heft in the industry and it only accounts for around 43.4 per cent of the combined market capitalisation of the top five IT services companies that are part of the Nifty 50 index, down from a high of 55 per cent in March 2020. 

TCS on Wednesday closed with a market capitalisation of around ₹11.3 trillion compared to the top five IT companies’ combined market capitalisation of around ₹26.1 trillion. 

The IT services industry has suffered a valuation derating (or contraction) after a sharp rise following the pandemic, but TCS has been the biggest loser in the post-pandemic selloff. 

TCS has lost nearly 27 per cent of its market capitalisation from its life-time high reached in September last year.

 

In comparison, the combined market capitalisation of the big five is down around 20 per cent from its highs at the end of December. This has resulted in a much sharper decline in TCS’ valuation metrics such as the trailing P/E multiple and the price to book value ratio compared to its peers.

 

TCS’ market capitalisation was a record high of around ₹15.44 trillion at the end of September last year.

 

For comparison, the big five’s combined market capitalisation has declined to around ₹26.1 trillion on Wednesday from ₹32.67 trillion at the end of December last year.

 

This analysis is based on the company’s market capitalisation at the end every quarter to align with companies’ quarterly result cycle.

 

As a result, TCS’ trailing P/E multiple has now declined to 22.5X from 32.6X at the end of September last year and a record high of 38.2X at the end of September 2021.

 

For comparison, the average P/E multiple of the big five has shrunk to 23X from 30.4X at the end of September last year and a record high of 35.5X at the end of December 2021.

 

According to analysts, a sharper fall in TCS market capitalisation and valuation in recent years can be attributed to an equally sharp slowdown in its earnings growth.

 

“In recent quarters TCS reported a much sharper slowdown in profit growth and margin contraction than its peers. Investors expect this trend to continue, leading to a decline in TCS valuation,” said G Chokkalingam, founder and chief executive officer, Equinomics Research & Advisory Services.

 

In the last four quarters, TCS’ net profit grew 4.4 per cent year-on-year compared to 6 per cent growth in the combined net profits of the top five IT companies.

 

TCS’ net profit (adjusted for exceptional gains & losses) grew to ₹50,294 crore during the trailing 12 months (TTM) ended September this year from ₹48,158 crore at the end of Q2FY25 on a TTM basis. In the same period, the big five’s combined net profit grew to around ₹1.13 trillion from ₹10.7 trillion a year ago.

 

Analysts remain cautious about TCS’ growth outlook for the forthcoming quarter, given the challenging growth environment. “While management expects FY26 growth to be better than FY25, we believe this guidance is somewhat fuzzy,” wrote analysts at Motilal Oswal Securities in their recent report on the company.