Slowing profit growth, weakening market dominance and valuation correction push TCS behind Infosys and HCL Tech for the first time in 14 years
Mumbai (Economy India): India’s largest IT services company, Tata Consultancy Services (TCS), has lost its long-held crown as the most valuable tech company in terms of valuation premium.
For the first time in 14 years, TCS shares have become cheaper than those of its key rivals Infosys and HCL Tech on a Price-to-Earnings (P/E) basis—an important benchmark used by global investors to assess attractiveness.
As of this week:
- TCS P/E Ratio: 22.5
- Infosys P/E Ratio: 22.9
- HCL Tech P/E Ratio: 25.5
This reversal marks a significant sentiment shift in India’s IT landscape, traditionally dominated by TCS.
TCS Market Cap Down by ₹4.5 Lakh Crore in One Year
A severe correction in TCS’s valuation has resulted in a 27% drop in its market cap, falling from a record ₹15.44 lakh crore in September 2024 to ₹11.3 lakh crore now.
Key Market Cap Highlights
- TCS share of the top 5 IT companies’ combined market value was 55% in March 2020
- Today it has fallen to 43.4%, signalling declining dominance
- Total top 5 IT companies market value = ₹26.1 lakh crore
Why Has TCS Lost Its Premium?
1. Slowest Profit Growth Among Peers
Over the past four quarters, TCS has delivered only 4.4% YoY net profit growth, compared to the 6% combined profit growth of the top 5 Indian IT firms.
2. Margin Compression
Analysts note sharper margin pressure on TCS’s earnings versus its competitors.
G. Chokkalingam (Economy Research Expert) explains:
“TCS has shown the steepest fall in profit growth and margins over recent quarters. Investors expect this weakness to continue, hurting its valuation.”
3. Post-Covid Valuation Reset
The IT sector saw inflated valuations during 2020–2021 due to digital adoption.
TCS saw a P/E peak of 38.2 in September 2021 — now down to 22.5.
4. Weakening Global Demand
Slower tech spending in BFSI and Europe, TCS’s strongest markets, has reduced revenue visibility.
Shift in Nifty: BFSI Sector Now Dominates
While TCS loses valuation, the Banking, Financial Services & Insurance (BFSI) sector has strengthened its footprint in Nifty 50.
- Current BFSI Weightage: 35.4% — highest in 3 years
- Dec 2024: 33.4%
- Dec 2023: 34.5%
- Peak (2019): 40.6%
Rising credit growth, stable margins, and robust profitability have pushed BFSI to the center of investor attention—opposite to the IT sector slowdown.
Experts Warn Caution Ahead for TCS
Analysts remain cautious about near-term growth:
- Weak BFSI spending
- Delayed tech budgets in US & Europe
- Margin pressure from wage hikes and attrition cycles
TCS’s upcoming quarterly guidance will be closely watched, as market sentiment will depend on management commentary.
TCS’s fall from premium valuations signals a new phase in India’s IT industry. While the company remains fundamentally strong, slowing profit growth and weakening global demand have forced investors to reassess expectations.
Infosys and HCL Tech, now commanding higher valuations, reflect shifting confidence within the sector.
Whether TCS regains its valuation premium will depend on recovery in global tech spending and the company’s ability to accelerate earnings growth in the coming quarters.
(Economy India)
