TCS shares close 7% higher, hit record high, cross Rs 10 lakh crore M-cap; should you buy or not?

Tata Consultancy Services (TCS), on Monday, became the only second listed Indian firm to reach the Rs 10 lakh crore market capitalization. TCS shares were shooting higher, up over 7% to end the day’s trade at a price of Rs 2,706 per share after the company announced that its board will consider an equity share buyback proposal later this week. With today’s upward move TCS shares have now surged 65% from their March lows. Analysts believe that TCS is a long-term bet and hope that the drive towards more digitization of things will continue to prove beneficial for the Information Technology (IT) major in the post coronavirus world.

“We are quite positive on the stock on a long-term basis. The third quarter might be a weak quarter for the company but that being said, on a long-term perspective the stock could still outperform and maintain the current valuations with the digital push that is going around,” Rajin Rajan, IT Analyst, Geojit Financial Services told Financial Express Online. TCS is the second most valuable listed company on the Bombay Stock Exchange (BSE) with a market capitalization of Rs 10.16 lakh crore minutes before closing. Rajan added that in the short and medium term, valuation risks are aligned with a number of IT sector stocks but feels that post the third quarter TCS could outperform. Refinitiv data shows that TCS has 13 ‘hold’ calls and 14 ‘buy’ calls and 8 ‘sell’ calls.

TCS’ announcement of an equity share buyback proposal to be considered by the board on Wednesday has also attracted a flurry of investors. The previous share buybacks undertaken by the IT giant have been for Rs 16,000 crore each in 2017 and then in 2018. Analysts at ICICI Securities believe that TCS has the potential to do a buyback of Rs 20,000 crore. The move is being seen as a positive by analysts. “We believe that while this is a positive development for the company it is also a positive development for the sector given that it could be a precursor for other IT companies to follow suit. Most IT companies have large surplus cash on books which can be used to reward shareholders either in the form of dividends or buybacks,” said Jyoti Roy – DVP- Equity Strategist, Angel Broking.

Stocks of the IT giant, analysts say, have risen, as a result of  higher allocation of institutional money into the stock and from positive sentiments as an extension of the IT rally in the US. Going ahead investors will be looking at how the firm’s quarterly numbers are. “Investors should look at the October 7, commentary on Deal Bookings, Pipeline, Demand by verticals (particularly BFSI and retail), Outlook for demand and pricing, IT outsourcing outlook by large corporates globally before taking further exposure at these valuation levels,” Divam Sharma, Co-founder at Green Portfolio, told Financial Express Online.

Since September 24, shares of TCS have jumped over 16%. “The stock has moved from strength to greater strength in just a couple of sessions. The resistance level was around the 2400 price mark and we have flown out of that price,” Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments told Financial Express Online. “Since the rise has been sharp and one way, I would not recommend entering the stock right away at the present juncture as the next resistance level is around 2800,” he added. He further said that if the stock corrects to levels closer to its support of about 2550-2600, it would be an appropriate level to enter with a target of 2800 and a stop loss of 2450.