**TCS Stock Valuation Declines Amidst Rising Competition**
TCS shares are currently trading at a forward price-to-earnings (P/E) ratio of 24.6, while its competitors, Infosys and HCLTech, are valued at 25.9 and 36.2 times their earnings, respectively, according to Bloomberg data. This marks a significant shift, as TCS last traded at a discount to Infosys in January 2022 and was valued lower than HCL Technologies back in September 2010. The P/E ratio, calculated by dividing a stock’s current price by its annual earnings, serves as a crucial indicator of a stock’s valuation.
This year, TCS’s shares have dropped over 20% on the NSE, while Infosys and HCLTech have seen declines of approximately 15% and 14.5%, respectively, as of July 11. The Nifty IT index has also fallen by about 13%. Analysts from Kotak Institutional Equities, including Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, noted that TCS’s competitive advantage has diminished in recent years due to improved execution by its rivals, who have enhanced their capabilities in large deal structuring and digital services. They also highlighted the increased competitive intensity from ambitious mid-tier firms and a renewed push from Tier-1 companies.
TCS has experienced three consecutive quarters of sequential revenue decline, underperforming both Infosys and HCLTech in terms of growth and major contract wins. For the first time since 2022 (compared to Infosys) and 2010 (compared to HCLTech), TCS is trading at a discount based on forward P/E, indicating a shift in investor confidence towards its competitors. The heightened expectations for Infosys and HCLTech are attributed to their recent strong performance, better growth trajectories, and consistent success in securing large contracts.
The decline in TCS’s premium over its smaller rivals can be traced back to its underperformance in the last three quarters. On July 10, TCS reported its slowest start to a fiscal year in five years, with a 0.59% drop in dollar revenue for the first quarter of 2025-26, following a 0.98% decline in the previous quarter and a 1.7% decrease in the quarter before that. In contrast, Infosys’s revenue fell by 4.23% sequentially in the March quarter, while HCLTech’s revenue decreased by 1% in the fourth quarter after a 2.55% increase in the third quarter. HCL Technologies is set to announce its first-quarter earnings on July 14, followed by Infosys on July 23.
Under the leadership of CEO K. Krithivasan, who took over on June 1, 2023, TCS has struggled to secure enough mega contracts (valued over $1 billion) to stimulate growth, according to analysts. The last significant mega deal announced by TCS, excluding major inter-group transactions, was not sufficient to bolster its competitive position.
**FAQ**
**Q: Why is TCS trading at a discount compared to Infosys and HCLTech?**
A: TCS is trading at a discount due to its recent underperformance in revenue growth and major contract wins, while Infosys and HCLTech have demonstrated stronger execution and growth momentum.
