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Tata Consultancy Services (TCS), a prominent player in the Indian IT sector, recently announced its financial results for the second quarter of 2024 (July-September), revealing a modest 5% year-on-year (YoY) increase in net profit. While the company recorded a decent 8% rise in revenue, its operating margin contracted slightly on a YoY basis, signaling a continuation of cautious trends observed in preceding quarters. These results have sparked debate among investors, with some expressing cautious optimism while others remain hesitant about the stock's future performance.
The Q2 report highlights several key factors influencing TCS's current trajectory. While the company witnessed a rise in employee headcount, it fell short of market expectations during the quarter. However, experts believe that the US Federal Reserve's (Fed) easing of monetary policy will benefit Indian IT majors like TCS, providing a favorable environment for growth. This bullish outlook has led some analysts to assign a 'buy' tag to TCS shares, with a short-term target price of ₹4,500 per share.
Experts like Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas, acknowledge the challenges faced by TCS during the quarter, noting that the company missed revenue and margin estimates. However, Hota remains optimistic about the long-term growth prospects of the IT sector, particularly for TCS, as the Fed's easing cycle and a stable macroeconomic environment create conducive conditions for growth in the second half of fiscal year 2025 and 2026. This optimistic outlook is further supported by the company's recent employee headcount growth and strong performance in the BFSI vertical.
Despite the modest Q2 results, analysts like Sumeet Bagadia, Executive Director at Choice Broking, advise investors to remain cautiously optimistic. He suggests that existing shareholders maintain a stop loss at ₹4,100 and consider adding to their positions if the stock's base remains strong, aiming for a near-term target of ₹4,400 to ₹4,500. Bagadia also encourages new investors to adopt a 'buy-on-dips' strategy, setting a similar near-term target of ₹4,400 to ₹4,500 but maintaining a stop loss at ₹4,100.
Overall, TCS's Q2 results have presented a mixed picture, reflecting the challenging macroeconomic environment. While the company's near-term prospects remain somewhat uncertain, analysts generally believe that the Fed's easing policy and long-term growth potential of the IT sector will create favorable conditions for TCS in the coming months and years. Investors will closely monitor the company's performance in the coming quarters to gauge its ability to navigate the current market conditions and achieve its long-term growth objectives.
Source: TCS share price: Is this a stock to buy today after Q2 results 2024?