Beaten-down stocks Part 6: TCS is trading at valuations too good to ignore

Information-technology services major Tata Consultancy Services (TCS) has emerged as a key focus in the current market setting. Its share price has dropped 30.9 per cent over the past year. Yet the stock combines relatively low valuations, steady earnings performance in recent quarters, and a return on net worth of 52.0 per cent. This blend offers investors downside protection in a weak market as well as scope for potential gains once sentiment turns positive.

 

India’s equity market overall has weakened after two straight years of strong double-digit gains. The benchmark BSE Sensex fell 4.8 per cent in the 12 months to September 2025, its poorest annual showing in more than a decade. This compares with a 28.1 per cent rise in the year to September 2024 and a 14.6 per cent increase in the preceding year. Consequently, the index has now posted negative returns in three of the past six years ended September.

 

The recent decline has nevertheless pulled down valuations from the record peaks of 2024. Several blue-chip counters are now available at more attractive levels, opening opportunities for long-term investors. Even so, caution is needed as valuations in the broader market still trade above long-period averages, making careful stock selection important. 

 

Why buy TCS?

 

• Steady growth outlook: India’s largest IT services company is projected to post 1.2 per cent sequential revenue growth in the September quarter, with operating profit margins improving by 10 basis points.
• Margin support factors: The one-month impact of wage revisions and lower utilisation is expected to be cushioned by rupee depreciation benefits and workforce optimisation savings.
• Sector tailwinds: ICICI Securities notes that TCS and the broader IT sector stand to gain from stable pricing, opportunities in agentic AI, and momentum in BFSI and hi-tech segments.
• Realignment under way: According to Motilal Oswal Research, pyramid leverage and productivity remain strong levers, but pricing pressure, evolving client behaviour, and the GenAI transition signal the beginning of a structural shift in delivery and pricing models.

   

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