TCS shares drop on deal termination; stock loses Rs 15,000 crore in market cap

Shares of TCS, the second most-valued stock on Dalal Street, fell over 1 per cent on Friday trade after announcing termination of deal by Transamerica Life Insurance. The 10-year deal, which was progressing since in 2018, has been ended 'mutually' due to the current macro-economic environment, the IT firm said.  The deal was valued at $2 billion.

The termination reignited concerns over the slowing demand in the IT sector. The news came days after JP Morgan placed TCS, along with two other IT firms,  on the negative catalyst watch list, saying they will disappoint the markets on the revenue and margin fronts in Q1FY24. JPMorgan's catalyst watch is its near-term conviction indicator for the equity coverage universe.

The stock settled the day at at Rs 3,175.25, down 1.27 per cent. In the process, the market capitalisation of the largest IT firm fell Rs 15,002.11 crore to Rs 11,61,840 crore on Friday against Rs 11,76,842 crore a day ago.

TCS said given the current macro environment and respective business priorities, Transamerica and TCS have mutually agreed to end the administration arrangement for Transamerica Life insurance, annuities and supplemental health insurance, and other employee benefit products.

The deal between TCS and Transamerica Insurance was signed in January 2018, as per a release by the IT services company. The deal ensured that TCS earned at least $200 million in annual revenue.

On TCS, JPMorgan said, “We remain UW (underweight) on the stock as we bake in lower growth from macro concerns in FY24E that will also limit significant margin expansion. Moreover, the unexpected CEO departure could lead to periods of volatility in a time of weaker tech spend and rapidly evolving macro.” It has set a price target at Rs 2,700 by March 2024."

It said that a miss can drive 2-3 per cent earnings cuts for TCS.

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