TCS shares react to Q1 results today; Motilal Oswal projects 15% upside

Shares of Tata Group giant and India's largest IT services company, Tata Consultancy Services Ltd. (TCS), will be reacting to their June quarter results on Friday, June 10. The results, which were in-line with subdued expectations, were reported after market hours on Thursday.

How Did TCS Fare In Q1 FY27?

For the June quarter, TCS reported constant currency revenue growth of 0.4% on a sequential basis, which is at the higher end of the broad range of expectations which were for a negative 0.1% to positive 0.4% growth.

The company's margins fell 130 basis points, on expected lines, as a CNBC-TV18 poll had projected a 120 basis points drop due to wage hikes.

Among the few companies that report classified AI revenue, TCS reported a 13.6% sequential revenue growth in this segment to $2.6 billion. AI now contributes to 8.5% of its overall topline.

An exceptional loss of ₹668 crore due to settlement of legal claims dragged TCS' profitability down to ₹13,349 crore during the quarter. Adjusted for that figure, the number is higher than the CNBC-TV18 poll expectation of ₹13,718 crore.

Should You Buy Or Sell TCS?

Brokerage firm Motilal Oswal has maintained its "buy" recommendation on TCS with a price target of ₹2,350, which indicates an upside potential of 15% from current levels.

It said in its note that although the short-term commentary from the management is better than what they anticipated, long-term uncertainties still remain.

"While we also expect the second quarter to be better, we believe that evidence around demand improvement is scant," the Motilal Oswal note said.

The TCS management also acknowledged that 10% to 15% of AI-led productivity pass through as projects come up for renewal, although it said that incremental client work as so far offset most of the revenue impact.

"We believe the full impact of AI deflation is still unfolding and productivity gains are likely to continue getting passed on to clients in the coming quarters," Motilal Oswal said, adding that this will keep the pressure on the existing book of business.

Motilal Oswal is working with 2.5% and 3.2% organic constant currency growth for TCS for financial year 2027 and 2028 respectively. And therefore, on these assumptions, it sees limited downside to the stock for now.

Shares of TCS had recovered from the lows of the day to end higher on Thursday ahead of the earnings announcement. The US-listed ADRs of its peers, Infosys gained 2% overnight, while those of Wipro ended 1% higher.

(This story will be updated with more analyst recommendations.)