JM Financial and HDFC Securities maintain buy ratings on muted revenue growth, banking on accelerating AI adoption and strong deal pipeline for FY27 recovery.
Tata Consultancy Services delivered a quarter that has brokerages pointing to early signs of demand recovery, with artificial intelligence services and deal momentum emerging as key themes for investors tracking the stock.
Revenue grew 0.8% sequentially in constant currency terms, ahead of JM Financial’s estimate of 0.6%. Operating margins stayed flat at 25.2%. While the headline numbers appeared modest, analyst commentary focused heavily on what’s happening with AI-related work and shifting client behavior.
AI services reached an annualized run rate of $1.8 billion, according to JM Financial, which noted this represented “17.3% QoQ growth in CC, with AI gaining strength across the full stack—from infrastructure to intelligence—as well as in cybersecurity, Enterprise Solutions, and IoT.”
The shift from pilot programs to actual deployments caught broker attention. “Enterprises are transitioning from AI pilot programs to ROI-driven deployment and TCS delivered over three times the number of ‘rapid builds’ projects for clients during the quarter compared to prior periods,” the JM Financial report stated.
HDFC Securities observed that “decision-making cycles have shortened versus earlier periods, with clients increasingly willing to commit to spends backed by ROI visibility.” The brokerage added that TCS “indicated confidence in a strong CY26, underpinned by sustained deal momentum and TCS’s leadership position in AI services.”
Deal Pipeline Builds for Next Year
Deal wins totaled $9.3 billion for the quarter, down from $10 billion previously. However, JM Financial pointed out that “LTM deal wins grew 1.5% with LTM book-to-bill at 1.37x.” The quarter included a significant mega deal in North American BFSI, according to the brokerage.
Management commentary suggested the pipeline is building for FY27. “Management indicated FY26 order wins to reach USD 38-39bn, which will support growth in FY27,” JM Financial reported. The brokerage stated that these deal wins “should support growth in FY27.”
On the demand environment, the picture varied by vertical and geography. “Among verticals, Regional markets led with 4.6% QoQ cc growth. Consumer, healthcare and EURS grew c.1% each in QoQ cc terms. BFSI (-0.4% cc QoQ), Tech (-1.3%cc) saw QoQ decline due to seasonality,” JM Financial detailed.
HDFC Securities noted that “BFSI showed good momentum despite seasonal furloughs, ENU posted strong growth, and Life Sciences saw positive shifts, though manufacturing remained marginal and the automotive sector was subdued.”
Geography showed mixed signals. “All geographies grew, except UK (-1.9% QoQ cc). North America was soft at 0.1% QoQ cc growth,” according to JM Financial. India revenues provided a bright spot, growing 8% sequentially in constant currency.
Margins Held Despite Multiple Pressures
The stable margin performance came through offsetting factors. JM Financial broke down the components: “Operational efficiency (80bps), currency (20bps) aided margins offset by investments in brand building (-50bps) and full quarter impact of wage hike (-50bps).”
The company took substantial exceptional charges during the quarter. “An exceptional item charge of INR 33.91bn was taken for restructuring costs and to account for new labour codes. The ongoing impact of the labour code changes is expected to be 10-15bps,” HDFC Securities stated.
Workforce adjustments continued, with headcount declining by around 11,000 employees, representing a 2% quarterly reduction. JM Financial noted this “signals further cost rationalization, partly offset by higher SG&A.”
Management Signals CY26 Optimism
Management commentary provided the basis for brokerage confidence about the year ahead. “Management expressed optimistism on CY26, supported by client conversations and deal momentum,” JM Financial reported.
On near-term guidance, HDFC Securities stated: “TCS continues to aspire to faster growth in international markets in FY26E vs FY25. The aspirational margin band remains at 26-28% and Q4 will be heading towards 26%.”
The AI positioning remains central to the growth narrative. “TCS reiterated its aspiration to become the world’s largest AI tech services company, and they see demand driven by AI and data-led services, ROI-led rapid build projects, cybersecurity and cloud,” according to JM Financial.
Client behavior changes also featured in management remarks. “Client decision cycles were reported to be shortening, with rising traction in short-cycle, ROI-led programs,” the JM Financial report stated.
Brokerages Maintain Positive Stance With Measured Upside
JM Financial maintained its BUY rating with a revised target price of Rs 3,810, up from Rs 3,770. “We raise revenue estimates by 0.3%-0.7% over FY26–28E, driven by the 3Q beat and positive commentary,” the brokerage stated. The changes resulted in “EPS upgrades of 0.5%-3.5% over FY26-8E.”
HDFC Securities kept its ADD rating with a target of Rs 4,000 unchanged. “Our EPS estimates remain unchanged, and we maintain our ADD rating with a TP of INR 4,000, based on 23x Mar-28E EPS,” the brokerage stated.
Both firms value TCS at 23 times March 2028 earnings, representing a modest discount to the stock’s ten-year average multiple of 24 times. At the current market price of Rs 3,240, the targets imply upside of 17-24% over the next twelve months.
Risks flagged by brokerages include productivity pass-through pressures. JM Financial noted that “10-15% productivity pass-through on renewals and proactive sharing of gains remain a concern.” The brokerage also stated that “annual wage interventions in Q4 remain a headwind” and “restructuring is expected to continue into Q4 as well.”
