India’s largest IT firm by market cap ditched by FIIs for 10 quarters in a row!

The lofty valuations of Tata Consultancy Services has played against the information technology major despite the recent correction in stock price, as foreign institutional investors (FII) have reduced their holding for the 10th straight quarter.

FII holding in India’s largest IT company by market capitalisation dropped to 12.94% as of December 31, from 13.05% a quarter ago.

In the last 10 quarters, FIIs have trimmed their holding by a whopping 306 basis points in the software major. The holding is down to 12.94% from as high as 16% in the September quarter of 2020.




The continued reduction in the holding by FIIs has had its impact on the stock performance. Compared to Infosys, HCL Technologies, and even Wipro, TCS’ shares have given lesser returns over the last three years.

While Wipro, HCL Technologies and Infosys have gained 63% to nearly 100%, TCS shares have given 55% in the last three years.

In the last one year, TCS shares have given 8% negative returns. The correction wasn’t enough to cool off the valuation. The stock is trading at a price-to-book value of 14 times which is higher than the industry average, according to Trendlyne.

While TCS reported strong numbers for the December quarter, it wasn’t good enough to entice investors as risks to earnings growth persists amid the macroeconomic slowdown in Europe and US.

Global ratings agency Fitch Ratings expects TCS’ revenue growth to slow to 11-12% in FY24, from an expected 18% growth in FY23.

Besides, the management failed to give a clear view on client budgets for 2023, which could have helped the Street gauge the slowdown and its impact on earnings.

Given that risks to earnings growth persists and TCS’ valuations do not reflect a potential global recession, for most analysts it is not the preferred pick in the IT pack.

In the case of TCS, it is already trading at 25 times, and after Q3 results, one wouldn’t see any upgrade in the earnings, said Mitul Shah, head of research – institutional equity at Reliance Securities.

“At this juncture of high level of uncertainty, valuation at 25x seems to be slightly expensive if we consider the long-term average being below 20x,” Shah said.


(Data input from Ritesh Presswala)

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