The Hindu Business Line : The TCS foray

THE MUCH-DISCUSSED PUBLIC floatation of shares of Tata Consultancy Services is a step closer to fruition with the software giant filing the draft prospectus for its initial public offering. This is welcome development. Not so much for the money that is going to accrue to the promoter company, Tata Sons, and other group firms which have invested in TCS, as for the potential that the development holds for selling India as an investment destination to foreign institutional investors. For some time now, interest in domestic paper has been somewhat lukewarm among FIIs. Mainly for two structural reasons. One, the paucity of quality stocks into which any significant overseas money can flow into or move out of without causing serious distortions in prices. Two, the shelving of the disinvestment programme in government-owned oil, telecommunication and banking stocks which otherwise would have provided an attractive outlet for such monies. It is in such a milieu that TCS is making a foray into the stock market.

India's competitive edge in software services is well recognised world over and should remain so in the foreseeable future, the threat from China notwithstanding. It is safe to say that given its pioneering status in the business of vending software services to the global community, TCS is well equipped to leverage successfully its leadership position and capture a significant share of emerging opportunities in this business. Priced correctly, then, it should turn out to be a profitable investment opportunity for the overseas community. More important, given the size of the issue, it could soak up a considerable portion of inflows into the country. The prospect of decent returns may also restore the dented confidence of domestic investors in the stock market. The development is also significant for placing in the public domain information about the financials of what is arguably the largest enterprise in the domestic software industry. For long, such information has been a matter of speculation or is owed more to some inspired leaks in sections of the business media. But in the wake of its listing, it should be available to the investment community more freely. The argument that the information need not be widely disseminated as it is a closely-held company is diluted somewhat by the fact of exposure of many listed Tata firms to the stock of Tata Sons, the software major's parent.

But that apart, as the largest entity in this business, TCS' performance could potentially offer an insight into the quality of performance of other listed enterprises in this business. Whether one likes it or not, there is considerable retail investor interest in software stocks. Any assessment of shift in fundamentals on an industry-wide basis would be incomplete without some understanding of the quality of the performance of TCS. The listing of TCS shares should thus fill a long-felt information gap.

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