Tata Consultancy Services (TCS) continues to navigate a volatile landscape as the Nifty IT index experiences its sharpest monthly decline since the 2008 financial crisis, plunging nearly 21% in February 2026. Despite this sector-wide correction, brokerage firm CLSA has reiterated an Outperform rating on the IT bellwether with a target price of 3,593 INR. The current market price of TCS stands around 2,574 INR, which reflects a 19% year-to-date decline and places the stock near its 52-week low. The brokerage’s target implies a substantial 39% upside, supported by the company’s strong cash flow and strategic pivot toward AI-native services. Dividend and Buyback Outlook TCS remains a top pick for income-focused investors, maintaining a high dividend yield of approximately 4.76%. For the upcoming Q4, analysts anticipate a potential dividend of 35 INR per share. This follows a significant Q3 payout of 57 INR, which included a special dividend of 46 INR. Furthermore, there is growing speculation regarding a potential share buyback in the coming quarters, fueled by recent tax-friendly budget changes. Operational Performance and AI Integration Financial results for Q3 FY26 showed resilient revenue growth of 5% year-on-year, reaching 67,087 crore INR. While consolidated net profit saw a 14% year-on-year dip to 10,657 crore INR, operating margins remained stable at 25.2%. A primary driver for future growth is the company's AI portfolio, which has already achieved an annualized revenue run rate of 1.8 billion USD. TCS is aggressively expanding its capabilities through partnerships with OpenAI and ServiceNow, focusing on transforming manual back-office functions into autonomous, AI-driven workflows. Sector Challenges and Risks The broader IT sector is currently facing an "AI scare trade." Concerns intensified this month after reports that advanced AI tools can now automate legacy code maintenance and legal functions, potentially threatening traditional billable-hour models. Global investors have responded by pulling over 10,956 crore INR from Indian IT stocks in early February alone. Key risks for TCS include persistent macroeconomic uncertainty in the U.S., potential tariff impacts, and currency fluctuations. Additionally, the Nifty IT index recently triggered a "Death Cross" technical pattern, suggesting that short-term sentiment remains bearish despite attractive long-term valuations. The sector is currently trading at a P/E ratio of roughly 22.1x, falling below its 10-year average.