Domestic brokerage JM Financial has reaffirmed its ‘Buy’ rating on Tata Consultancy Services (TCS), citing a robust second-quarter performance and the IT major’s decisive strategic pivot towards artificial intelligence (AI).
The brokerage has raised its 12-month price target for TCS to Rs 3,520 from Rs 3,410, implying a potential upside of about 15 per cent from the current market price of Rs 3044.70.
TCS delivered a strong operational show in the second quarter of FY26, surpassing expectations across key metrics. The company’s constant currency (cc) revenue grew 0.8 per cent sequentially, ahead of estimates, while its EBIT margin expanded 70 basis points QoQ to 25.2 per cent, also beating forecasts. Deal wins remained robust at $10 billion, up 16 per cent year-on-year, resulting in a book-to-bill ratio of 1.4x for the last twelve months.
JM Financial noted that TCS’s continued focus on cost optimisation is a meaningful positive. The IT major reported a 3 per cent sequential reduction in headcount, including 1 per cent through “involuntary attrition”. Another 1 per cent reduction is planned in the coming quarters, which the brokerage termed a “durable reset in cost base”.
“This should either help TCS improve margins or allow it to reinvest for growth, improving earnings visibility in either scenario,” JM Financial said in its note.
A key highlight of the quarter was what the brokerage described as TCS’s “deterministic AI pivot”. The company announced plans to set up a new subsidiary to develop 1GW of co-location AI data centre capacity in India over the next five to seven years, with a total investment outlay of about $7 billion. JM Financial called this move — the company’s willingness to deploy its balance sheet for growth, a “significant deviation from its earlier conservative stance” and a “welcome change in the current dynamic environment.”
Looking ahead, TCS management expects international business growth in FY26 to surpass the 0.7 per cent cc growth seen in FY25. Based on the improving margin profile from the cost reset, JM Financial has upgraded its EPS estimates for FY26-28 by 2 per cent. The brokerage’s target price of Rs 3,520 is based on a valuation of 21 times forward earnings and does not yet account for any potential contribution from the new data centre venture.
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