Why is Tech Mahindra falling/rising?

Recent Price Movement and Market Outperformance

Tech Mahindra’s stock has demonstrated resilience and strength in recent trading sessions, outperforming its sector by 0.27% on the day and registering gains for four consecutive days, accumulating a 2.38% return over this period. This upward trajectory is further underscored by the stock trading above all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling a strong technical position and positive market sentiment.

In comparison to the broader market benchmark, the Sensex, Tech Mahindra has outpaced the index over shorter time frames. Over the past week, the stock appreciated by 2.15%, while the Sensex declined by 0.40%. Similarly, in the last month, Tech Mahindra surged 12.15%, contrasting with a marginal 0.30% drop in the Sensex. These figures highlight the company’s ability to generate returns even when the broader market faces headwinds.

Fundamental Strengths Supporting the Rise

The recent price appreciation is underpinned by Tech Mahindra’s consistent financial performance. The company has reported positive results for six consecutive quarters, with a notable 26.76% growth in Profit After Tax (PAT) for the nine-month period, reaching ₹3,501.80 crores. This robust earnings growth is complemented by an impressive Return on Capital Employed (ROCE) of 21.57% for the half-year, indicating efficient utilisation of capital to generate profits.

Additionally, the company maintains a high Return on Equity (ROE) of 16.46%, reflecting strong management efficiency in deploying shareholders’ funds. Tech Mahindra’s low average Debt to Equity ratio, effectively zero, further enhances its financial stability by minimising leverage risks. The high Debtors Turnover Ratio of 8.11 times for the half-year period suggests effective management of receivables, contributing positively to cash flow and operational efficiency.

Investor participation has also surged, with delivery volumes on 18 Dec rising by 88.19% to 9.84 lakh shares compared to the five-day average. This heightened activity indicates growing interest and confidence among investors, which often supports upward price momentum. The stock’s liquidity remains adequate, allowing for sizeable trades without significant price impact, with a trade size capacity of approximately ₹3.28 crores based on recent average traded values.

Long-Term Performance and Institutional Backing

While Tech Mahindra’s year-to-date and one-year returns have lagged behind the Sensex, with declines of 5.43% and 8.09% respectively against the Sensex’s gains of 8.69% and 7.21%, the company’s longer-term performance remains strong. Over three years, the stock has delivered a 57.16% return, significantly outperforming the Sensex’s 37.41% gain. Over five years, Tech Mahindra’s 72.82% return is competitive, though slightly below the Sensex’s 80.85% rise.

Institutional investors hold a substantial 55.41% stake in the company, signalling confidence from well-resourced and informed market participants. Such backing often provides stability and can be a catalyst for sustained price appreciation as these investors typically conduct thorough fundamental analysis before committing capital.

Conclusion: Why Tech Mahindra Is Rising

In summary, Tech Mahindra’s recent rise in share price on 19-Dec is supported by a combination of strong quarterly financial results, efficient management metrics, and increased investor participation. The company’s ability to outperform the sector and broader market in the short term, coupled with solid fundamentals such as high ROE, ROCE, and zero debt, has bolstered market confidence. Institutional backing further reinforces the stock’s appeal, making it a preferred choice for investors seeking exposure to the IT services sector with a track record of consistent earnings growth and operational efficiency.

While the stock has underperformed the Sensex on a year-to-date and one-year basis, its recent momentum and long-term outperformance suggest a positive outlook. Investors should continue to monitor quarterly results and market conditions, but the current data indicates that Tech Mahindra’s rise is well-founded on tangible financial and market factors.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →