TCS share slips 2% ahead of Q3 earnings; muted growth anticipated

Tata Consultancy Services (TCS), India's largest IT services company, is set to announce its third-quarter earnings for FY25 today, January 9, after market hours. Ahead of the results, TCS shares traded slightly higher, reflecting cautious optimism among investors.

Stock performance ahead of results

At 10:00 AM, TCS shares were up by 0.35 per cent, trading at Rs 4,122 on the BSE. The stock's movement has been subdued in recent sessions as market participants await clarity on the company's Q3 performance. The September to December quarter is typically impacted by furloughs and seasonal trends, leading to tempered growth expectations.

Muted growth expected in Q3

Analysts anticipate a sequential slowdown in constant currency (cc) revenue growth, estimating it to hover around 0 per cent for the quarter. JM Financial expects cross-currency benefits to provide a 95 basis points tailwind, resulting in a 1 per cent decline in dollar revenue. Lower revenue contributions from the BSNL deal are also likely to weigh on growth.

Margins and key performance areas

Despite revenue challenges, analysts expect operational efficiencies to drive a 20 basis point expansion in operating margins. Lower revenues from low-margin projects, including the BSNL deal, are expected to aid profitability.

The market will closely watch management commentary on key areas such as deal wins, pricing trends, and the BFSI sector's performance. These insights will provide valuable cues on demand recovery in the IT sector amidst a challenging global economic environment.

What to expect post-earnings

The stock's immediate reaction will depend on how TCS fares against market expectations. Investors will focus on the company’s growth outlook, particularly in its major verticals like BFSI and retail, and updates on new deal wins. Guidance for FY25 will also be a critical factor influencing investor sentiment.

TCS’s performance is expected to set the tone for other IT companies reporting their quarterly earnings in the coming weeks. While a muted quarter is likely, positive commentary on deal pipelines and demand recovery could provide support to the stock.