As TCS loses shine, investors place hopes on Infosys, HCLTech

The TCS stock is currently trading at 24.6 times the company’s forward price-earnings while Infosys and HCLTech, India’s second- and third-largest IT services firms, are trading at 25.9 and 36.2 times their earnings, respectively, according to Bloomberg data.

TCS last traded at a discount to Infosys in January 2022, and was valued cheaper than HCL Technologies in September 2010.

The price-to-earnings (P/E) ratio is arrived at after dividing the current value of a stock by its annual earnings and a key metric to measure how expensive a stock is.

TCS shares have declined by more than 20% this year on NSE, while Infosys was down about 15% and HCLTech about 14.5% as of 11 July. The Nifty IT index was down about 13%.

“TCS’s edge over peers has reduced in the last several years driven by better execution of peers who have caught up on large/mega deal structuring and digital competencies,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna in a note dated 10 July.

“Competitive intensity has increased with ambitious mid-tier and renewed push from Tier-1,” the Kotak analysts added.

At the heart of TCS losing its premium to its smaller rivals is the Mumbai-based company’s underperformance over the previous three quarters. On 10 July, TCS registered its slowest start to a fiscal year in five years as the company reported its earnings for the April-June quarter.

TCS’s dollarrevenue in the financial first quarter for 2025-26 slipped 0.59% from the preceding three months, following a 0.98% sequential fall in the January-March quarter and a 1.7% decline in the October-December period.

Infosys’s revenue declined 4.23% sequentially in the March quarter, after rising 0.92% sequentially in the three months to end-December. HCLTech’s revenue fell 1% sequentially in the fourth quarter after growing 2.55% in the third quarter.

HCL Technologies will declare its first-quarter earnings on 14 July, and Infosys on 23 July.

‘Higher expectations for Infy, HCLTech’

TCS, under K. Krithivasan who took charge as chief executive on 1 June 2023, was not able to win enough mega contracts (deals valued at more than $1 billion) in 2024-25 to drive growth, according to analysts.

“TCS last announced a mega deal excluding significant inter-group transactions (such as BSNL and JLR) and Diligenta platform (such as Aviva and NEST) where competition is low, in 2022. From then to now, competition has announced multiple mega deals,” the Kotak analysts said in their note.

Mint reported on 10 July that while much of TCS’s recent growth was driven by Bharat Sanchar Nigam Ltd, the IT outsourcer would not get much revenue from the state-run telecom company in future. BSNL had awarded a $1.83 billion contract to TCS two years ago.

As for JLR, or Jaguar Land Rover, TCS in 2023 won an £800-million order from Tata Motors Ltd’s British subsidiary to revamp its IT systems. But JLR’s declining sales could curb discretionary spending by the company.

Abhishek Kumar, equity analyst at JM Financial, said investors’ bets on Infosys and HCLTech were on account of the companies’ better growth in the previous two years and higher growth prospects. “The premium is a reflection of investors’ higher growth expectations for HCLTech and Infosys versus TCS,” said Kumar.

TCS’s revenue grew 3.78% in 2024-25, slower than Infosys’s 3.85% and HCL Technologies’s 4.3% pace. In FY24, TCS’s 4.1% revenue growth lagged HCLTech’s 5.4% but was better than Infosys’s 1.9%.

Natarajan Chandrasekaran, chair of Tata Sons, which owns 71.77% in TCS, recognising TCS’s challenges, recently appointed two Tata Group executives to assist Krithivasan in steering the company. On 10 April, Aarthi Subramanian was appointed TCS’s chief operating officer, and Mangesh Sathe as chief strategy officer.

‘Growth remains elusive for TCS’

Investors in Indian IT services companies are also taking cues from uncertainties caused by the rapid adoption of generative artificial intelligence (Gen AI) across industries and smaller IT companies being able to strike competitive large deals.

In TCS’s annual report for FY25, Krithivasan said clients were increasingly shifting focus from a use case-based approach to return on investment-led scaling of AI, and that the appointments of Subramanian and Sathe were driven by “the industry shifts led by AI“.

However, Motilal Oswal analysts said “growth for TCS remains elusive”.

“It is now clear that productivity benefits are being promised as a part of most deals, potentially dragging future revenues for the (IT) industry. In most tech cycles, however, a declining legacy business is offset by a growing new-age business. This kicker is missing in this cycle, putting further pressure on growth,” Motilal Oswal analysts Abhishek Pathak, Keval Bhagat and Tushar Dhonde wrote in a note dated 10 July.

TCS ended June with an operating margin of 24.5%, higher than Infosys’s 21% and HCLTech’s 17.9%. The company ended Friday, 11 July, with a market capitalisation of $137.6 billion, making it India’s most-valued IT services firm. Infosys and HCLTech are valued at about $77.2 billion and $51.7 billion, respectively.

JM Financial’s Kumar expects a reversal in the valuation disconnect among the country’s three largest IT services firms. “Deal wins are far more consistent for TCS as compared with peers and the discount should go away once macroeconomic uncertainties lift and growth converges,” said Kumar.

TCS reported an order book with a total contract value of $9.4 billion for the first quarter of 2025-26, up 13% from the corresponding year-ago period.