TCS Q3 Review: Brokerages Split As Inline Quarter Meets Tepid Global Demand, FY27 Hope Intact

Tata Consultancy Services Ltd.'s third quarter performance drew a mixed response from brokerages, with the Street broadly agreeing that while the quarter was largely in line on headline numbers, underlying trends in international markets remain soft.

However, optimism around fiscal 2027 exit momentum, stable margins and scaling of AI-led opportunities continue to keep long-term expectations alive.

TCS reported constant currency revenue growth of 0.8% quarter-on-quarter, with international business growing a modest 0.3–0.4% quarter-on-quarter. EBIT margins remained stable at around 25.2%, as wage hikes and higher marketing spends were largely offset by workforce optimization and currency tailwinds. Order intake stood at $9.3 billion, broadly flat on a trailing twelve-month basis, reflecting a still-cautious global IT spending environment.

Most brokerages flagged that developed markets, particularly North America and BFSI, were weaker than expected, while regional markets and select verticals like CPG provided some support. Headcount declined about 4% year-on-year, underlining subdued demand conditions across the sector.

Morgan Stanley maintained an Overweight rating on TCS and raised its target price to Rs 3,540 from Rs 3,430. While it noted that underlying trends were softer than expected — especially in international business growth — the brokerage highlighted management commentary pointing to momentum holding up into calendar year 2026.

Stable margins near 25%, with management expressing confidence of moving towards 26%, and expectations of fiscal 2026 exiting at a better growth rate than last year were seen as key positives supporting FY27 assumptions.

The brokerage also sees early silver linings in the company’s AI journey, with proof-of-concept projects moving into production and AI revenues scaling up, even though the sector remains in a transition phase. It modestly nudged up financial year 2027–28 estimates and sees potential catalysts from data-center-related developments over the medium term.

Citi on the other hand, maintained its Sell rating on TCS, trimming its target price marginally to Rs 3,020. The brokerage termed December quarter as an inline quarter but highlighted that muted international business growth is likely to disappoint investors, especially after management’s relatively positive tone post second quarter.

It pointed out that equipment and software contributed nearly half of the sequential growth, raising questions about the sustainability of core services momentum.

Citi remains cautious on the sector, citing high competitive intensity, AI-led productivity risks and the rise of global capability centres. Despite management’s confidence, Citi believes the business outlook remains challenged and continues to prefer peers like Infosys and HCLTech within large-cap IT.

Kotak Securities also struck to a more constructive tone, maintaining a Buy and hiking its fair value to Rs 3,675 from Rs 3,550. It acknowledged muted revenue growth but emphasised stable margins and improving execution indicators.

Kotak believes financial year 2026 has been a year of underperformance for TCS, but steps such as sharper focus on mega deals, reduced sales slippages, and renewed AI and M&A strategies could help the company close the growth gap with peers in the next financial year.

The brokerage flagged incumbency as a near-term challenge during the revenue deflation phase of GenAI adoption but sees TCS well-positioned as a core partner for clients across cloud, data and AI journeys. It marginally raised fiscal 2027–28 EPS estimates and expects gradual improvement in growth trajectories.