Tata Communications Ltd Upgraded to Buy on Strong Technical and Financial Metrics

Technical Indicators Signal Bullish Momentum

The primary catalyst for the rating upgrade was a significant enhancement in Tata Communications’ technical grade, which shifted from mildly bullish to bullish. Key momentum indicators underpin this positive technical stance. The Moving Average Convergence Divergence (MACD) is bullish on both weekly and monthly charts, indicating sustained upward momentum. Similarly, Bollinger Bands confirm bullish trends on weekly and monthly timeframes, suggesting price volatility is favouring upward movement.

Daily moving averages also support this positive outlook, reinforcing the stock’s short-term strength. The Know Sure Thing (KST) indicator, a momentum oscillator, is bullish on both weekly and monthly scales, further validating the technical upgrade. While the Relative Strength Index (RSI) shows a weekly bearish signal, the absence of a monthly RSI signal tempers concerns, and the overall technical summary remains positive. Dow Theory assessments remain mildly bullish, consistent with a gradual strengthening trend.

Price action supports these indicators, with the stock closing at ₹2,060.15 on 23 June 2026, up 3.47% from the previous close of ₹1,991.10. The stock touched its 52-week high of ₹2,109.90 during the day, underscoring strong buying interest. Over the past week, the stock has outperformed the Sensex by delivering a 5.83% return compared to the benchmark’s 1.09%, and year-to-date gains stand at 12.91% versus a Sensex decline of 9.54%.

Valuation Appears Attractive Amidst Peer Comparison

Tata Communications’ valuation metrics have also contributed to the upgrade. The company’s Return on Capital Employed (ROCE) stands at a robust 13.6%, signalling efficient use of capital to generate profits. The Enterprise Value to Capital Employed ratio is a modest 4.8, indicating the stock is trading at a discount relative to its peers’ historical averages. This valuation discount, combined with a high ROCE, makes the stock an attractive proposition for investors seeking value in the telecom services sector.

Despite a high Price/Earnings to Growth (PEG) ratio of 52.8, which suggests the stock is priced for growth, the company’s steady profit growth and strong management efficiency justify this premium. Over the past year, Tata Communications has delivered a 24.63% return, significantly outperforming the BSE500 index return of 0.51%. This market-beating performance reinforces the stock’s appeal from a valuation perspective.

Financial Trends Reflect Stability and Efficiency

The company’s recent quarterly results for Q4 FY25-26 have been positive, further supporting the upgrade. Operating profit to interest coverage ratio reached a high of 7.07 times, reflecting strong ability to service debt. The Profit Before Depreciation, Interest and Taxes (PBDIT) for the quarter was ₹1,283.93 crores, marking a peak performance. Additionally, the half-yearly debt-to-equity ratio has improved to a low of 3.55 times, signalling a reduction in financial leverage and risk.

Management efficiency remains a key strength, with a Return on Capital Employed (ROCE) of 18.13% underscoring effective capital utilisation. Institutional investors hold a significant 33.57% stake in the company, and their holdings have increased by 0.62% over the previous quarter, indicating growing confidence from sophisticated market participants.

However, investors should remain mindful of the company’s relatively high average debt-to-equity ratio of 5.12 times, which poses a risk in a rising interest rate environment. Furthermore, long-term operating profit growth has been modest, with an annualised increase of just 0.50% over the past five years, suggesting limited expansion in core profitability.

Quality Assessment and Market Position

Tata Communications is classified as a mid-cap company within the telecom services sector, with a Mojo Score of 78.0 and a Mojo Grade upgraded to Buy from Hold as of 22 June 2026. This reflects an overall improvement in the company’s quality parameters, including management effectiveness, financial health, and market positioning. The company’s stock price has demonstrated resilience and growth, with a 10-year return of 354.58%, far exceeding the Sensex’s 188.03% over the same period.

Despite some technical signals such as the weekly RSI showing bearish tendencies, the broader technical and fundamental picture supports a positive outlook. The stock’s ability to outperform the market consistently, combined with strong institutional backing and improving financial metrics, justifies the upgrade in investment rating.

Balancing Risks and Rewards for Investors

While the upgrade to Buy reflects a positive shift in Tata Communications’ outlook, investors should weigh the risks carefully. The company’s high leverage remains a concern, with an average debt-to-equity ratio of 5.12 times, which could constrain financial flexibility. Additionally, the slow pace of operating profit growth over the last five years suggests that the company may face challenges in scaling profitability rapidly.

Nonetheless, the company’s strong management efficiency, improving technical indicators, and attractive valuation relative to peers provide a compelling case for investors seeking exposure to the telecom services sector. The stock’s consistent outperformance against the Sensex and BSE500 indices over multiple time horizons further supports its investment appeal.

In summary, Tata Communications Ltd’s upgrade to a Buy rating by MarketsMOJO is underpinned by a confluence of improved technical momentum, solid financial performance, attractive valuation metrics, and strong institutional support. This comprehensive improvement across quality, valuation, financial trend, and technical parameters positions the stock favourably for investors looking for growth in the telecom services space.

Get 33% Off on our 1 Year Plan - Limited Period Only! Start Today