TCS - downgraded to ‘reduce’; Target Price of Rs.830

 TCS has been downgraded to ‘reduce’ from the earlier ‘buy’ call as the price may drop to Rs.830 range over one year.

 Though the demand environment for IT companies remain unaffected for the time being, it is difficult to believe that demand situation may continue to remain unaffected in the current scenario of deteriorating macroeconomic variables such as severe job cuts in financial services segment, faltering consumer and manufacturing data etc. These areas contribute about 72% of revenue of the company.

 It seems that the current price of the stock does not factor in weak demand scenario for IT services and several other adverse factors such as the debt crisis in Europe, US banking issues etc that may impact the stock price. Hence the target price is reduced to Rs. 830 over one year.

 Company’s overexposure in to financial services sector is another cause for concern because demand from this segment is faltering. While it is in the range of 26 -35 % to its peers, it is around 43% for TCS.

 Issue related to new US visas is another problem for Indian IT companies. Checks indicate that getting US new visas is more difficult than earlier. Companies may overcome this problem by hiring from the US but this is more costly and will lower margins.