TCS stock hits lowest level since 2020: What's causing decline?
What's the story
Tata Consultancy Services (TCS) shares have hit a five-and-a-half-year low, closing at ₹2,585 on Friday. The fall comes amid fears of artificial intelligence (AI)-led disruption in the IT sector. The company's market capitalization has also fallen to ₹9.6 lakh crore, a multi-year low and below its previous trough of ₹9.77 lakh crore. The current price is a 44% drop from its all-time high of ₹4,592 in August 2024.
Market shift
TCS's fall allows SBI to surpass it
The latest decline has taken TCS to its lowest level since September 22, 2020. The company's fall from grace has allowed State Bank of India (SBI) to surpass it as India's fourth-largest listed company by market capitalization. The recent sell-off was triggered by a sharp fall in Infosys and Wipro ADRs in the US after AI start-up Anthropic launched a tool for corporate legal teams.
Industry concerns
AI threat to IT services
The launch of Anthropic's tool, which can automate various legal tasks, has raised fears that AI could disrupt the competitive landscape for software and IT services companies. This could hurt their profitability and market positioning. Industries like legal services, data analytics, and customer support—once thought to be safe from AI disruption—now seem vulnerable. If these functions can be automated at scale by AI, it could pose structural challenges for the vast IT services industry built around delivering them.
Market outlook
JPMorgan defends IT services firms
Despite the fears of disruption, global brokerage JPMorgan has defended IT services firms as the "plumbers of the tech world." The firm has noted that their dividend yields have now hit levels last seen only during the global financial crisis and COVID-19. JPMorgan is recommending a "barbell approach to buy deep value in large caps" with overweight ratings on Infosys and TCS, alongside growth champions Persistent Systems and Sagility.