These experts are betting big on TCS despite 'uncomfortable employee attrition levels'. Here's why

The brokerage says TCS’ margin should improve from the levels in April to June 2022 period with a better utilisation key lever. Margins of most IT companies have been hit due to rising employee costs amid attrition. For TCS, employee attrition is stable month-on-month even though it is still above comfort levels, according to CLSA.

"TCS indicated that while employee attrition remains elevated, it is stabilising on a month-on-month basis and should taper down over the next few months. This should ease pressure on back-filling and retention costs," said CLSA.

However, the brokerage pointed out that clients, especially in Europe, are watchful of macroeconomic variables but there has been no consequential business impact for now. Therefore, CLSA believes the near-term momentum is healthy for both the company's revenue and deal wins.

"Long term, TCS is confident in its ability to capture spending for both cost-optimisation and transformation; its ability to industrialise at scale is a core differentiator," it said.

Market expert Saurabh Mukherjea too said his firm Marcellus Investment Managers continues to hold the IT stock. “TCS remains one of our largest holdings there and we don't really have any compunctions,” he told CNBC-TV18.

Nischal Maheshwari, CEO-Institutional Equities & Advisory, Centrum Broking has also been positive on IT for a couple of months because the margin pressure was basically because tech companies had very high attrition rates and in the last quarter, most said that the peak of the attrition has happened at 27-28 percent. So margin should have actually bottomed out last quarter, he said.

Nomura, on the other hand, believes there is more evidence of a revenue slowdown ahead for the IT sector while high inflation shall dampen tech budgets. The brokerage's view on TCS stock is 'reduce' among large caps.

Meanwhile, TCS has been named a representative vendor in the Gartner Market Guide for Enterprise IT Sustainability Services, the company said in a regulatory filing on Tuesday post market hours.

“At TCS, we combine our purpose-driven world view, investments in research, innovation and intellectual property and our co-innovation ecosystem to help clients reduce their environmental footprint and achieve their sustainability goals,” said Krishnan Ramanujam, President, Enterprise Growth Group, TCS.