As Infosys Mulls Buyback, Will TCS Follow Suit?

Infosys Ltd.'s move to consider a share buyback proposal has stirred excitement across the Indian IT sector. Global brokerage CLSA believes that Tata Consultancy Services Ltd., the country’s largest IT services company, may also be prompted to explore a similar capital allocation strategy.

CLSA noted that Infosys' move could create incremental pressure at TCS to undertake a buyback as a confidence-building measure amid an overall weak demand environment. CLSA has maintained an outperform rating on TCS with a target price of Rs 4,279.

The tech giant's last share buyback had concluded in December 2023. The brokerage believes that instead of paying a large dividend in the third quarter of this financial year, the brokerage would opt for a tender buyback of around Rs 20,000 crore.

According to brokerages' analysis of TCS' last five share buybacks, TCS provides technical support to the stock price from the initial announcement date until the buyback closure.

Infosys board is scheduled to meet on Thursday to consider the buyback proposal. If it is approved, then it will make the fifth share buyback in the last eight years. It will also be the first buyback in three years, with the last one having been announced in 2022.

The stock settled 0.46% higher at Rs 3,124.20 apiece on the NSE, compared to a 0.13% advance in the benchmark Nifty 50. TCS shares have fallen 30.25% in the last 12 months and 23.70% year-to-date.

Out of 52 analysts tracking the company, 34 maintain a 'buy' rating, 12 recommend a 'hold' and six suggest 'sell', according to Bloomberg data. The average 12-month consensus price target of Rs 3,685.91 implies an upside of 18%.

Kunal Rambhia, Fund Manager & Trading Strategist at The Streets, is also bullish on TCS with a target price of Rs 3,250 and a stop loss of Rs 3,100.