News

Published: June 17, 2023
Updated: June 17, 2023

TCS Shares Dip and Market Cap Slides by Rs 15,000 Crore as Transamerica Deal Terminates

Tata Consultancy Services (TCS), the second most-valued stock on Dalal Street, experienced a decline of over 1 percent in its shares on Friday following the announcement of the termination of a deal with Transamerica Life Insurance. This development, mutually agreed upon due to the current macroeconomic environment, raised concerns about the IT sector's demand. The termination of the 10-year deal, valued at $2 billion, resulted in a significant reduction in TCS's market capitalization.

TCS Terminates Deal with Transamerica:

TCS confirmed the termination of the deal, which had been in progress since 2018, citing the prevailing macro environment and respective business priorities. The agreement encompassed the administration arrangement for Transamerica Life Insurance, annuities, supplemental health insurance, and other employee benefit products. The termination of this long-standing deal raised questions about the company's growth prospects and its ability to meet revenue and margin expectations.

Impact on Market Capitalization:

Following the news of the terminated deal, TCS shares settled at Rs 3,175.25, experiencing a decline of 1.27 percent. Consequently, the market capitalization of the largest IT firm in India dropped by Rs 15,002.11 crore to Rs 11,61,840 crore on Friday, compared to Rs 11,76,842 crore the previous day. This decline in market cap highlighted the immediate financial impact of the terminated deal on TCS.

Concerns Raised by JP Morgan:

The termination of the deal by TCS came shortly after JP Morgan included the company, along with two other IT firms, on its negative catalyst watch list. JP Morgan expressed concerns that these firms would disappoint the markets in terms of revenue and margins in the first quarter of FY24. The negative catalyst watch list serves as an indicator of near-term conviction for the equity coverage universe, further contributing to the market's apprehension about TCS's performance.

Future Outlook and Analyst Perspective:

JP Morgan's analysis of TCS suggests an underweight position on the stock, as lower growth expectations due to macro concerns in FY24 are anticipated to limit significant margin expansion. Moreover, the unexpected departure of the CEO adds to the potential volatility in a period of weaker tech spend and evolving macro conditions. JP Morgan has set a price target of Rs 2,700 by March 2024, emphasising the need for caution when considering investments in TCS.

Uncertainty looms over company being able to maintain revenue and margin guidance

TCS shares witnessed a decline and the company's market capitalization suffered a significant setback as the deal with Transamerica Life Insurance came to an end. This termination, along with the concerns raised by JP Morgan, has cast a shadow of uncertainty over TCS's future revenue and margin performance. Investors and market participants will closely monitor the company's strategic moves and financial results in the coming quarters to gauge its ability to navigate the evolving macro-economic environment and restore confidence in its growth trajectory.