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Infosys vs TCS: Fundamental Analysis

Created on 08 Apr 2022

Wraps up in 5 Min

Read by 16.3k people

Updated on 17 Feb 2024

Today, let me take you back to the 90’s era of the dot-com bubble, where practically any company with the suffix ‘dot.com’ was an instant hit. This overflowing love for technology and internet companies caused a bubble in the stock market that had excessive speculation about internet-related companies. 

A lot of markets all around the world rose more than 100% in a short span of time but like a bubble, the stock market busted. On the contrary, innovation in the technology space, especially information technology, has only flourished.   

Today, we will talk about information technology and the two most prominent companies in the sector, TCS & Infosys! So, let’s get started. 

Overview of IT sector

It's not hidden that Information technology is one of the key sectors in any economy. If we take a look at the weightage of sectors under Nifty50, IT comprises 13.64% of it, and when we talk about the average contribution of IT to Indian GDP it has roughly been 7.4%. The IT and BPM (business process management) market also accounts for 56% of the global outsourcing market. 

IT companies are asset-light and cash-rich and provide services such as cloud management, cybersecurity, consultancy, software services, network setup, help desk and so many more. Today, almost every company is a technology company be it fintech, edtech, food tech and whatnot. Nearly every startup is technology-based making the business model of these companies IT-based. 

The graph below shows the market size of IT industry in India and its growth prospects. 

Indian IT Market Size
Source: Mordor Intelligence

The two major groups within the IT sector are software & services and technology hardware & equipment. Also, the Indian IT business service market is projected to reach ₹34.9 lakh crore by 2029. The major IT companies in India are TCS, L&T infotech Ltd., Infosys, HCL Technologies, Wipro, Tech Mahindra, Mphasis Ltd and more.

Today, we are going to discuss two of them i.e Infosys & TCS. So, let’s get started. 

Company Overview of Infosys

Infosys was established in the year 1981 and today has global recognition and is also listed on NYSE. The company majorly operates in next-generation digital services & consulting, providing its services in more than 50 countries. 

Infosys has made a strategic investment in different domains with its 13 subsidiaries across the globe. Infosys was listed on the Indian stock exchange in the year 1993. Take a look at the graph below for company essentials as of January 2024. 

Company Overview of Infosys
Source: Ticker by Finology

Company Overview of TCS

TCS was established in the year 1998 they are one of the global leaders in providing IT services, digital & business solutions and consulting-led services. Specifically working in domains related to analytics & insights, Blockchain, Automation & AI, cyber security, quality engineering and more. 

As far as the management team is concerned the company is headed by N. Chandrasekaran as chairman.

The company essentials as of January 204 are as shown below. 

Company Overview of TCS
Source: Ticker by Finology

Infosys VS TCS: Stock comparison

ROE

Return on equity is a measure of the profitability of the company. It calculates the financial performance of the company and depicts how the profitability and efficiency of the company generate profits. An ROE of more than 15 is considered good and healthy for a company. Infosys is showing a ROE of 32.3% whereas TCS has 52%.

ROCE

Return on capital employed shows how efficiently the company is generating profits from its capital. Though, ROCE is a measure to compare the performance of a company in capital-intensive sectors. While ROE only considers equity, ROCE considers debt and equity. 

Take a look at the ROCE data of TCS and Infosys.

 TCS

 TCS - ROCE

Infosys

Infosys - ROCE

P/E

The price to earnings ratio or P/E ratio is a measure of earnings by a company based on its share price. A high P/E implies the stock of the company is overvalued or the investors are expecting high growth in the future. 

The P/E ratio of Infosys as of January 2024 is 28.22, whereas for TCS it is 32.89.

EPS

Earning Per Share or EPS is a measure that depicts, the earnings of one share based on the company's profit. Suppose, the profit of the company is ₹500 and the number of shares outstanding in the market is 100. Then, in that case, the EPS would be ₹5 (500/100)

The higher the EPS the better it is for shareholders. It is also an indicator of higher profit. The EPS of TCS & Infosys as of January 2024 is ₹59.41 and ₹58.77 respectively.

5 Year CAGR return

CAGR or compounded annual growth rate is one of the most accurate ways to calculate the returns. It is nothing but the measure of how much you have earned on your investment over a period of time. 

The 5-year CAGR of TCS and Infosys are as follows.

TCS

5-year CAGR of TCS

Infosys

5-year CAGR of Infosys

Attrition

For an IT company, employees are its biggest asset. Attrition is the rate at which employees are leaving the organization. Reportedly Attrition in the Indian IT sector is very high. For the quarter ending December 2023, the attrition rate of TCS was 14.9% but for Infosys, it was 12.9%. 

The Bottom Line

The dynamics of TCS & Infosys together forecast the whole sector. The biggest threat for any IT company that operates globally is the appreciation of INR against the USD. Any kind of appreciation like this will lead to fall in rupee revenue because most currencies earn in foreign currency. But both TCS & Infosys need not worry about the rupee rise because major IT companies hedge the currencies in the forex market including these two.

This was just about TCS & Infosys in the IT sector. There are195+ IT companies listed in India. Analyse them and make a smart decision on your own with the help of Ticker by Finology, your stock research companion that has stock analysis tools, peer comparison, Bundles and so much more.

Also, is there any topic you want a blog on or do you have any queries related to this blog?

Do write in the comment section if you liked the blog.. :) Until then, Happy Investing.

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Ayushi Upadhyay

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A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

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