- Shares close up 3.85%, trimming year-to-date decline to 31.77%
- India's $315 billion IT sector is navigating AI pricing squeeze better than expected, analyst says
- TCS's gains came amid broader IT rally
Oct 9 (Reuters) - Shares of Tata Consultancy Services logged their biggest percentage rise in six weeks on Friday after the largest Indian IT services company posted steady margins despite ramping up artificial intelligence investments, boosting confidence it can preserve profitability amid weak demand.
TCS settled 3.85% higher on the day, paring intraday gains of 6.17%. The company led the rise in the IT index, which rose 3.02%, also posting its best session in six weeks.
AI is disrupting India's $315 billion software services sector by undermining its billable hour business model, but is creating new demand as clients buy services built on the technology. Companies are ramping up investments to capture this demand and cushion the hit to their core business.
"The sector is currently facing the AI deflation impact," said Indsec Securities research analyst Rishubh Vasa, referring to the downward pressure on prices as AI reduces the time taken to complete tasks. "If your margins are held steady, it's a positive thing."
TCS is part of the salt-to-software Tata Group, which is at the centre of a dispute over control of holding company Tata Sons and whether it should go public.
The firm kicked off earnings for the Indian IT sector on Thursday, posting an operating margin that was flat sequentially at 24%. The results reinforced expectations that the IT sector is navigating the shift to artificial intelligence better than feared.
Morningstar analysts said they see "a clear path to further scale AI revenue" at TCS, whose annualised AI revenue jumped nearly 20% quarter-on-quarter to $3.1 billion.
The investment research firm, however, reduced its fair value estimate to 2,360 rupees from 2,400 rupees to reflect a possible prolonged slowdown across consumer clients.
Analysts, on average, rate the stock "buy" with a median price target of 2,387.50 rupees, according to LSEG-compiled data.
TCS earnings came on a day when the US suspended TCS and several other technology firms from the Permanent Labor Certification program. The company said it does not expect much impact from the suspension.
"Market reaction seems to be saying that this visa action is just more of the same, already baked into the numbers," said Sonam Srivastava, founder and CEO of Wright Research.
Reporting by Saikeerthi and Bharath Rajeswaran in Bengaluru; Editing by Jochelle Mendonca
Source: Reuters