Recent Price Movement and Market Context
Tata Communications has experienced a consistent decline over the past three trading sessions, with cumulative losses amounting to approximately 3.66%. The stock's intraday low on 09-Jan touched ₹1,728.10, marking a 2.59% drop from previous levels. This downward trajectory aligns closely with the broader sector's performance, indicating that the stock's movement is largely in line with industry peers rather than isolated company-specific issues.
Comparing the stock's returns against the benchmark Sensex reveals a relative underperformance in the short term. Over the past week, Tata Communications declined by 3.07%, slightly more than the Sensex's 2.55% fall. Similarly, the one-month and year-to-date returns for the stock stand at -3.85% and -4.74% respectively, both exceeding the benchmark's declines of -1.29% and -1.93%. Despite this, the stock has delivered a modest positive return of 1.42% over the last year, though this lags behind the Sensex's 7.67% gain.
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Technical Indicators and Trading Activity
From a technical standpoint, Tata Communications' current price remains above its 200-day moving average, signalling a long-term support level. However, it is trading below its shorter-term moving averages, including the 5-day, 20-day, 50-day, and 100-day averages, which suggests recent bearish momentum. The weighted average price indicates that a greater volume of shares was traded near the day's low, reinforcing selling pressure during the session.
Investor participation has also waned, with delivery volumes on 08-Jan falling by nearly 48% compared to the five-day average. This decline in active trading interest may contribute to the stock's price softness, as reduced demand can exacerbate downward price movements. Despite this, liquidity remains adequate, supporting trades up to approximately ₹0.63 crore without significant market impact.
Fundamental Strengths and Valuation Considerations
Despite the recent price weakness, Tata Communications maintains several positive fundamental attributes that support a hold stance. The company boasts a robust return on capital employed (ROCE) of 18.37%, reflecting efficient management and effective utilisation of capital resources. Its valuation metrics also appear attractive relative to peers, with an enterprise value to capital employed ratio of 4, indicating the stock is trading at a discount compared to historical averages within the sector.
Profit growth over the past year has been modest but positive, with a 0.9% increase, while the price-to-earnings-growth (PEG) ratio stands elevated at 47.5, suggesting that the market may be pricing in slower growth or higher risk. Institutional investors hold a significant 32.64% stake in the company, and this share has increased by 0.65% over the previous quarter. Such holdings typically reflect confidence in the company's fundamentals and long-term prospects, although recent price action indicates some caution among market participants.
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Outlook and Investor Implications
The recent decline in Tata Communications' share price appears to be driven primarily by short-term sectoral pressures and reduced investor participation rather than fundamental deterioration. While the stock has underperformed the benchmark indices in the near term, its long-term returns remain positive, supported by strong management efficiency and reasonable valuation metrics. Investors should weigh the current technical weakness against these underlying strengths when considering their positions.
Given the stock's liquidity and institutional backing, the current price correction may offer a potential entry point for long-term investors who favour companies with solid capital returns and stable profit growth. However, cautious investors may prefer to monitor the stock's ability to regain momentum above its short-term moving averages before increasing exposure.
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