---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 177037
conversation_id: 4a18dd8b-0942-4452-a820-0dde07b76f1e
citations: 11
created: 2026-05-31 21:03:58Z
---

# How does Tata Consultancy’s valuation compare to peers, and what justifies its premium/discount?

# Tata Consultancy Services (TCS) — Valuation vs. Peers

**Setup**: TCS is India's largest IT services firm (market cap **US$147.4bn**, Rs3,452 share price as of CLSA's June 2025 update) [4]. CLSA rates TCS **Outperform** with a target of **Rs4,275** (+23.8% upside) — its only "valuation" justification language being "PE-based target price based on 26.5x 5Q-8Q (1QFY27 to 4QFY27) EPS, largely in line with its five-year mean" [1][9].

The peer set is the Indian IT Services Tier-1 (Infosys, HCL Tech, Wipro, Tech Mahindra) plus mid-cap challengers (LTIMindtree, Persistent Systems).

---

## 1. Where TCS Trades — Absolute Multiples (FY26E P/E, end-April / June 2025)

| Company | Mkt Cap (US$bn) | FY26 P/E (1-Jan-25) | FY26 P/E (Now*) | Multiple Δ YTD | CLSA Rec | Target (Rs) | Up/Down |
|---|---|---|---|---|---|---|---|
| **TCS** | **147.4** | **27.0x** | **23.9x** | **–11.3%** | O-PF | 4,275 | +23.8% |
| Infosys | 79.0 | 26.8x | 21.7x | –19.1% | O-PF | 1,861 | +14.0% |
| HCL Tech | 54.3 | 27.7x | 23.2x | –16.3% | O-PF | 1,874 | +9.2% |
| Wipro | 31.9 | 23.5x | 19.1x | –18.9% | O-PF | 300.0 | +14.7% |
| Tech Mahindra | 19.5 | 28.2x | 23.5x | –16.6% | HC O-PF | 1,976 | +15.5% |
| LTIMindtree | 18.9 | 30.1x | 25.8x | –14.2% | HLD | 4,548 | **–16.6%** |
| Persistent | 11.0 | 61.2x | 46.0x | –24.8% | HC O-PF | 7,730 | +28.3% |

*"Now" = 29 April 2025 close [2][3][4]. CLSA's market caps for the Indian large-caps are from the June 2025 sector preview [3][4].

**Key observations from CLSA's own framing:**
- TCS trades at a **premium to Infosys and Wipro** (~10% richer than INFY, ~25% richer than WPRO on FY26 P/E) and **roughly in line with HCL Tech**.
- TCS trades at a **discount to LTIMindtree** (~8% lower) and a **deep discount to Persistent** (~50% lower) — the mid-caps still command growth-related premia.
- **TCS suffered the smallest multiple correction during the Jan–Apr 2025 tariff-driven derating** (–11.3% vs –19% sector average), which CLSA attributes to "having one of the highest return profiles and FCF payout ratios" — i.e., its de-rating cushion is structural [2].

---

## 2. Sector-Level Context (NIFTY-IT)

CLSA frames TCS's premium within a broader Indian IT de-rating:
- NIFTY-IT P/E sits at **24.9x**, a **1.23% discount to its 5-year average**, and at a **13.4% premium to NIFTY** (vs. a 5-year average premium of 19.2%) [5].
- "Nifty IT PE is down 20% since the start of 2025 as the outlook for FY26 has turned gloomier with the weak macroeconomic backdrop and tariff-related uncertainty" [11].
- Implication: the sector premium has compressed, but TCS itself has held up better than the index — meaning its **relative premium within the sector has widened** even as absolute multiples have come in.

---

## 3. Intra-Sector Premium History — What Justifies TCS's Premium

CLSA tracks long-horizon relative-P/E ratios. The historical evidence is striking:

### TCS vs HCL Tech (7-yr avg premium = 53%)
- **Apr-25: 12%** premium — running **far below** the 7-yr mean of 53% and below the –1sd band of 28% [6].
- TCS's traditional premium to HCL has collapsed from 78–94% in 2018–2019 to barely double-digits today.

### TCS vs Wipro (7-yr avg premium = 47%)
- **Apr-25: 24%** premium — also well **below** the 7-yr mean of 47% [7].
- Wipro's relative de-rating has been less severe than HCL's, but TCS's premium over Wipro is still compressed vs history.

### Infosys vs TCS (7-yr avg discount = –14%)
- **Jun-25: Infosys at –12%** to TCS — close to the 7-yr mean, but compared to the 30% historical discount earlier in the decade, Infosys has **closed the valuation gap with TCS**, narrowing TCS's relative premium dramatically [8].

**Punchline**: TCS still trades at a P/E premium to most of its Indian large-cap peers in absolute terms, but **all of its historical premiums have been compressing** for 2+ years. The relative premium today is markedly thinner than the 5-7 year average.

---

## 4. What Justifies the Remaining Premium

CLSA's framing across the May–June 2025 sector reports gives four pillars for the TCS premium (the only Tier-1 to **resist the multiple correction**):

1. **Highest-quality return profile in the cohort** — CLSA explicitly cites "one of the highest return profiles and FCF payout ratios" as the reason TCS de-rated **least** during the tariff scare (–11.3% vs the sector's –16% to –19% range) [2].

2. **Largest scale** — at US$147bn market cap, ~2x Infosys, ~3x HCL Tech, ~5x Wipro [4]. Scale advantages: deal-bidding capacity (large transformation contracts), client diversification, and balance-sheet flexibility.

3. **Cash return discipline** — high payout ratio + buybacks ~ structural support for the multiple even when growth flattens.

4. **Defensive positioning in a Gen-AI / discretionary-spend uncertainty cycle** — CLSA's 9-May TCS note (Outperform: "Gen AI helping legacy modernisation") cites the company benefiting from legacy modernization demand. The valuation TP is set at **26.5x 5Q–8Q EPS, "largely in line with its five-year mean"** [1] — meaning CLSA is not asking the market to **expand** TCS's multiple, only to hold the long-run average.

---

## 5. What Argues *Against* the Premium (the discount case)

- **Multiple compression is broad-based** — every Tier-1 has de-rated; TCS's relative premium is shrinking [2][8].
- **Growth has decoupled from valuation**: CLSA notes that even with average top-5 IT USD revenue growth picking up modestly to ~7%, NIFTY-IT P/E is back near the 7-yr mean (23x) — the multiple is no longer being rewarded by growth [11].
- **Mid-cap (Persistent, LTIM) optionality**: faster-growing mid-caps trade at 25–46x FY26 P/E, capturing the Gen-AI / discretionary-spend upside narrative. TCS's defensive posture means it likely underperforms in a strong cyclical recovery.
- **Infosys catching up**: TCS's historical premium to Infosys was driven by margin and execution gaps that have narrowed; CLSA's current INFO/TCS discount of just 12% (vs 30% historical average) suggests the market is increasingly pricing the two as peers [8].

---

## 6. Bottom Line

TCS's premium is **defensible but eroding**. It is justified by:
- Highest-tier return ratios and cash payouts (smallest YTD multiple compression in Jan–Apr 2025) [2].
- Scale leadership (~2x Infosys market cap) [4].
- Defensive cash-return profile in an uncertain macro / Gen-AI capex backdrop.

It is **discounted** versus history because:
- Relative premiums to HCL (12% vs 53% avg), Wipro (24% vs 47% avg), and Infosys (~12% discount vs 30% avg) have all compressed materially [6][7][8].
- Mid-caps (LTIM, Persistent) — not large-caps — are absorbing the Gen-AI growth narrative.

CLSA's stance: **Outperform with TP of Rs4,275** based on multiple = 5-year mean — i.e., the broker assumes the **premium normalizes**, not expands. The +23.8% upside is therefore mostly EPS-growth-driven, not re-rating-driven [1][3].

---

**Sources**
[1] Tata Consultancy - O-PF (Gen AI helping legacy modernisation) — CLSA (9 May 2025) — 607958739
[2] India IT (4QFY25: Expect V-shaped recovery) — CLSA (2 May 2025) — 607957919 (FY26 PE multiple consensus estimates table)
[3] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — 607962319 (Recs / TP table)
[4] India IT 1QFY26 — CLSA (18 Jun 2025) — 607962319 (HCL/INFO market caps)
[5] India IT Sector Update (No change to tale of two cities) — CLSA (16 May 2025) — 607959674 (NIFTY IT valuations vs 5-yr avg)
[6] Tata Consultancy - O-PF — CLSA (9 May 2025) — 607958739 (TCS vs HCL premium history)
[7] Tata Consultancy - O-PF — CLSA (9 May 2025) — 607958739 (TCS vs Wipro premium history)
[8] India IT 1QFY26 — CLSA (18 Jun 2025) — 607962319 (Infosys/TCS discount history)
[9] Tata Consultancy - O-PF — CLSA (9 May 2025) — 607958739 (TCS market cap / 12M TP)
[10] India IT (4QFY25) — CLSA (2 May 2025) — 607957919 (FY26 EPS estimates table)
[11] India IT (4QFY25) — CLSA (2 May 2025) — 607957919 ("Nifty IT PE down 20% since the start of 2025")

**Note on coverage**: All sources are CLSA internal research (RMS workspace). Manticore TFS chunks for ticker "TCS" returned The Container Store (US-listed retailer, different entity) — those have been excluded to avoid wrong-entity attribution.

## Citations

- [1] **607958739LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958739LinqAlpha.PDF>
- [2] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>
- [3] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [4] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [5] **607959674LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959674LinqAlpha.PDF>
- [6] **607958739LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958739LinqAlpha.PDF>
- [7] **607958739LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958739LinqAlpha.PDF>
- [8] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [9] **607958739LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958739LinqAlpha.PDF>
- [10] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>
- [11] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>

