TCS Stock: Motilal Oswal Sets ₹4,400 Target, Sees 36% Upside

Motilal Oswal Confident on IT Sector

Motilal Oswal Financial Services has expressed a 'mild overweight' stance on the Indian IT services sector, signaling cautious optimism amid a dynamic global environment. The brokerage has identified key players with strong execution capabilities and robust deal pipelines as primary investment opportunities. Within this framework, Tata Consultancy Services (TCS) has emerged as a top pick, with the brokerage reiterating its 'Buy' rating and setting a target price of ₹4,400 per share. This target implies a significant potential upside of 36% from its current market price.

TCS Delivers Strong Q3FY26 Performance

The confidence in TCS is largely underpinned by its solid performance in the third quarter of fiscal year 2026. The IT giant reported revenue of $1.5 billion, marking a 0.8% quarter-on-quarter increase in constant currency terms, which surpassed analyst estimates. This growth was primarily driven by strong performance in regional markets, which grew by 4.6% QoQ. Other key verticals such as Energy, Resources, and Utilities (1.0% growth) and Life Sciences and Healthcare (0.9% growth) also contributed positively.

Profitability metrics remained stable and impressive. The company's EBIT margin was flat sequentially at 25.2%, slightly ahead of expectations. Adjusted Profit After Tax (PAT) for the quarter stood at ₹141 billion, reflecting a 6.4% increase from the previous quarter and a 13.4% rise year-on-year. This performance demonstrates the company's ability to manage costs effectively while navigating market demands.

Healthy Deal Wins Signal Future Growth

A key indicator of future revenue visibility, the total contract value (TCV) of new deals won during the quarter, was a healthy $1.3 billion. This resulted in a stable book-to-bill ratio of 1.2x, suggesting that TCS is securing new business faster than it is recognizing revenue from existing contracts. This strong deal intake provides a solid foundation for sustained growth in the upcoming quarters. Management has indicated that the growth momentum in international markets is expected to improve in the second half of the fiscal year.

Motilal Oswal's Investment Rationale

Motilal Oswal's 'Buy' recommendation is based on several factors. The brokerage highlighted TCS's consistent performance, stable EBIT margins, and a strong deal pipeline as key reasons for its positive outlook. The report projects continued growth into the fourth quarter, with year-on-year increases expected in revenue (6.8%), EBIT (10.8%), and adjusted PAT (10.9%). The target price of ₹4,400 is derived from a valuation of 26 times its estimated FY28 earnings, reflecting confidence in the company's long-term earnings trajectory.

However, the brokerage did note a point of concern regarding TCS's reiteration of its 26-28% aspirational EBIT margin band. Motilal Oswal suggested that strictly adhering to this target might prevent the company from capitalizing on growth opportunities by reinvesting in the business at this stage of the technology cycle.

HCL Technologies: Another Favored Pick

Beyond TCS, Motilal Oswal also holds a positive view on HCL Technologies, favoring it for its sector-leading revenue growth and a significant 43.5% increase in the TCV of new deals. The brokerage has a 'Buy' rating on HCL Tech with a target price of ₹2,200, which suggests a potential upside of 32% from its current price of ₹1,668. The company's net profit for the quarter was reported at ₹48 billion, a 13.3% sequential increase.

Brokerage Recommendations at a Glance

Broader Market Perspective

Other brokerage firms also share a positive outlook on TCS, albeit with different target prices. Choice Institutional Equities maintains a 'BUY' rating with a ₹3,950 target, citing strong momentum in AI-led services. Similarly, JM Financial has a 'Buy' call with a revised target of ₹3,520, noting that a leaner cost base could support margin expansion or growth reinvestments.

This consensus reflects a broader belief in the resilience and strategic positioning of leading Indian IT firms. The focus on AI, digital transformation, and large-scale modernization programs continues to drive demand for their services.

Conclusion

Motilal Oswal's analysis underscores a strong conviction in the growth prospects of Tata Consultancy Services. Supported by a robust Q3 performance, consistent deal wins, and stable margins, the company appears well-positioned to navigate the evolving market landscape. While the brokerage's 'mild overweight' stance on the sector advises selectivity, its 'Buy' ratings on both TCS and HCL Technologies highlight them as top contenders for investors looking to capitalize on the strength of India's IT industry.