Shares of Tata Consultancy Services (TCS) experienced minor selling pressure on January 12, ahead of the company's highly anticipated third-quarter earnings announcement. The results from India's largest IT services firm are set to officially commence the Q3 earnings season for Indian corporations, a period under intense scrutiny from analysts and investors.
What to Expect from TCS Q3 Performance?
Market expectations for the quarter are tempered. Analysts project a largely flat sequential performance, attributing this to seasonal furloughs and continued cautious spending from clients. On a year-on-year basis, however, revenue growth is anticipated to show improvement for most IT firms.
For TCS specifically, brokerages forecast modest growth in its international operations, which is likely to be partially offset by a decline in the domestic India business. Kotak Institutional Equities estimates the total contract value (TCV) for the quarter to be in the range of US$10–11 billion. EBIT margins are expected to remain stable, with the depreciation of the Indian rupee helping to compensate for planned investments.
Seema Srivastava, Senior Research Analyst at SMC Global Securities, noted that the earnings will reflect a resilient performance despite muted sequential revenue growth. She emphasized that while client spending remains cautious, the underlying demand for long-term digital transformation projects is intact. "This quarter is expected to highlight TCS’s continued focus on cloud migration, artificial intelligence, data analytics, and cybersecurity," she added.
Market Focus Shifts from Growth to Stabilisation
According to Harshal Dasani, Business Head at INVAsset PMS, the market's primary focus is not on absolute Q3 growth figures but on signals that demand is stabilising. "Revenue growth is expected to remain modest in constant currency terms, reflecting cautious client spending, particularly in discretionary technology budgets," Dasani stated. He pointed out that margins will be closely monitored, considering factors like wage costs and currency movements, though major negative surprises are not widely anticipated.
Dasani highlighted a crucial point for investors: "Any improvement in order inflows or confidence on demand recovery can outweigh near-term softness in numbers. For investors, this quarter is about forward visibility, not backwards-looking performance." Key areas to watch include management commentary on demand trends, deal ramp-ups, performance across key industry verticals, and the overall deal pipeline.
Trading Strategy and Technical Outlook for TCS Stock
Historical data reveals a mixed pattern for TCS shares following quarterly results. An analysis shows the stock has declined in three of the last five post-earnings sessions. However, after the Q3 results last year, the stock rallied nearly 6%.
Dasani advises that ahead of the Q3 results, TCS should be approached as an event-risk stock rather than a pure directional bet. He cautions that large pre-result moves are not typical for TCS, with volatility usually emerging after the numbers and management commentary are out. He recommends that any short-term trades should be size-controlled, employing strategies that limit downside risk.
On the technical front, analyst Anshul Jain of Lakshmishree observes that TCS is forming a well-defined 27-week cup and handle pattern, suggesting prolonged consolidation. "Price action remains tight, suggesting sellers are losing momentum as demand stabilises," Jain noted. He added that if the results are not negative, the chart structure favours a potential upward move towards the ₹3,600 zone. The setup is considered invalid only if the stock price falls decisively below the handle's base.
The outcome of TCS's earnings is seen as a bellwether for the Indian IT sector and the broader market, potentially offering cues to offset headwinds like foreign institutional investor (FII) selling and global economic concerns.
