Barely four years ago, Tata Consultancy Services Ltd (TCS), the bellwether of the Indian IT industry, was delivering double-digit growth despite its scale. Fast forward to the present, and the picture looks a little gloomy.

The company reported its first revenue decline last fiscal year and three quarterly revenue contractions over the past eight quarters, amid mounting concerns over AI-led disruption and slowing client spending. The timing could hardly be worse, as this may have been Indian IT’s rockiest start to the year since the turn of the century, with AI-centric firms announcing new advancements in their AI models every two weeks.

Heads of Indian IT, including TCS chief executive K. Krithivasan, admitted to revenue hits and even exhorted senior employees to build AI solutions, even if it came at the cost of revenue cannibalization.

Revenue decline, driven by a lack of big-ticket contracts and advances in AI tools, roiled markets with the sectoral index Nifty IT declining 26% year to date. During this period, TCS shares have tumbled by 34.6%, the largest decline among the country’s major IT services companies.

While much of this decline can be attributed to AI-driven advancements, much of it is also the company’s doing. Since Krithivasan took over as CEO in June 2023, the company grew at a compounded quarterly rate of 0.48%, slower than Infosys Ltd’s 0.85% and HCL Technologies Ltd’s 1.08%.

The West Asia war aggravated concerns around growth as large companies are likely to trim their tech budget and push back their IT modernisation programs to ensure smooth running of their core business.

The proof of changing times is evident in the company's largest acquisition, Coastal Cloud for $700 million. TCS announced its acquisition in December last year, and completed it in January.

While the company ended its mega deal drought when it bagged a billion-dollar IT modernization contract with Telefonica in December last year, Krithivasan’s three years have been average at best.

TCS and its peers face the toughest challenge yet as a recovery in fortunes seems far-fetched. At least three analysts have flagged the current fiscal year to be softer than expected, with the country’s largest tech services firms expected to miss their guidance.

As TCS kicks off the earnings season, investors will eye the company’s roadmap and whether its new bets on sovereign cloud and AI data centres could boost its FY27 growth. Mint takes a close look at four probable talking points in the earnings announcement on Thursday.

Demand outlook

Accenture Plc’s tepid commentary on little change in client tech budgets last month, paired with its lowest quarterly order bookings in two years, puts the spotlight on TCS’ management. The company’s guidance on changes in client budgets, demand, and the after-effects of the war on client commitments will be tracked.

Last quarter, the company’s management was optimistic on the growth outlook, stating that it continues to see strong client engagement and long-term deal commitments despite global uncertainty, “positioning it for improved performance in the coming year.”

Whether the management adopts a more cautious stance going forward or retains its optimism will be a key monitorable.

Revenue and profitability

A Bloomberg poll of 30 analysts expects the company to report $7.53 billion in revenue, implying a 1.2% quarterly decline. This translates to its worst first quarter in six years.

The company might lose revenue because of a decrease in tech spend or an “increase in in-sourcing activity from financial services/retail clients, which form 55% of TCS’s revenues,” according to JP Morgan analysts Ankur Rudra, Bhavik Mehta, and Harshit Sharma, in a note dated 24 June.

On the flip side, a falling rupee against the US dollar may aid overall growth.

The company’s operating margins are expected to decline because it gives out wage hikes in the quarter. Its investment in AI data centres is further expected to dent profitability. The company’s views on retaining its leading profitability levels in the industry will be tracked.

Key verticals and geographies

The company is expected to report muted growth from banks and retailers as clients open their own back-end tech centres. Both these verticals account for almost half of the company’s revenue.

“We expect TCS to report flat QoQ CC revenue growth, as steady execution in BFSI and Consumer is likely to be offset by continued softness in Communications and cautious discretionary spending across Manufacturing and North America,” said Motilal Oswal analysts Abhishek Pathak and Keval Bhagat, in a note dated June.

AI and employee addition

The company is yet to announce major revenue inflows from its AI data centre arm, which will take time to build out. The management commentary on the progress of its ambitious data centre foray will be gauged.

“TCS has not yet announced finalisation of land purchase for the AI datacentre buildout in its hyper-vault business. Post land finalisation, the AI datacentre build-out would take 18 months,” said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Nayak, in a note dated 2 July.

Any new commentary on the AI-led deflation after the launch of new AI models will also be tracked.

The company has completed a year since it embarked on its largest layoff drive, letting go of 12,000 employees by March. In this backdrop, the management’s commentary on fresher hiring this year will also be tracked as AI advancements pose further threats to IT services firms.

Barely four years ago, Tata Consultancy Services Ltd (TCS), the bellwether of the Indian IT industry, was delivering double-digit growth despite its scale. Fast forward to the present, and the picture looks a little gloomy.

The company reported its first revenue decline last fiscal year and three quarterly revenue contractions over the past eight quarters, amid mounting concerns over AI-led disruption and slowing client spending. The timing could hardly be worse, as this may have been Indian IT’s rockiest start to the year since the turn of the century, with AI-centric firms announcing new advancements in their AI models every two weeks.

Heads of Indian IT, including TCS chief executive K. Krithivasan, admitted to revenue hits and even exhorted senior employees to build AI solutions, even if it came at the cost of revenue cannibalization.

Revenue decline, driven by a lack of big-ticket contracts and advances in AI tools, roiled markets with the sectoral index Nifty IT declining 26% year to date. During this period, TCS shares have tumbled by 34.6%, the largest decline among the country’s major IT services companies.

While much of this decline can be attributed to AI-driven advancements, much of it is also the company’s doing. Since Krithivasan took over as CEO in June 2023, the company grew at a compounded quarterly rate of 0.48%, slower than Infosys Ltd’s 0.85% and HCL Technologies Ltd’s 1.08%.

The West Asia war aggravated concerns around growth as large companies are likely to trim their tech budget and push back their IT modernisation programs to ensure smooth running of their core business.

The proof of changing times is evident in the company's largest acquisition, Coastal Cloud for $700 million. TCS announced its acquisition in December last year, and completed it in January.

While the company ended its mega deal drought when it bagged a billion-dollar IT modernization contract with Telefonica in December last year, Krithivasan’s three years have been average at best.

TCS and its peers face the toughest challenge yet as a recovery in fortunes seems far-fetched. At least three analysts have flagged the current fiscal year to be softer than expected, with the country’s largest tech services firms expected to miss their guidance.

As TCS kicks off the earnings season, investors will eye the company’s roadmap and whether its new bets on sovereign cloud and AI data centres could boost its FY27 growth. Mint takes a close look at four probable talking points in the earnings announcement on Thursday.

Demand outlook

Accenture Plc’s tepid commentary on little change in client tech budgets last month, paired with its lowest quarterly order bookings in two years, puts the spotlight on TCS’ management. The company’s guidance on changes in client budgets, demand, and the after-effects of the war on client commitments will be tracked.

Last quarter, the company’s management was optimistic on the growth outlook, stating that it continues to see strong client engagement and long-term deal commitments despite global uncertainty, “positioning it for improved performance in the coming year.”

Whether the management adopts a more cautious stance going forward or retains its optimism will be a key monitorable.

Revenue and profitability

A Bloomberg poll of 30 analysts expects the company to report $7.53 billion in revenue, implying a 1.2% quarterly decline. This translates to its worst first quarter in six years.

The company might lose revenue because of a decrease in tech spend or an “increase in in-sourcing activity from financial services/retail clients, which form 55% of TCS’s revenues,” according to JP Morgan analysts Ankur Rudra, Bhavik Mehta, and Harshit Sharma, in a note dated 24 June.

On the flip side, a falling rupee against the US dollar may aid overall growth.

The company’s operating margins are expected to decline because it gives out wage hikes in the quarter. Its investment in AI data centres is further expected to dent profitability. The company’s views on retaining its leading profitability levels in the industry will be tracked.

Key verticals and geographies

The company is expected to report muted growth from banks and retailers as clients open their own back-end tech centres. Both these verticals account for almost half of the company’s revenue.

“We expect TCS to report flat QoQ CC revenue growth, as steady execution in BFSI and Consumer is likely to be offset by continued softness in Communications and cautious discretionary spending across Manufacturing and North America,” said Motilal Oswal analysts Abhishek Pathak and Keval Bhagat, in a note dated June.

AI and employee addition

The company is yet to announce major revenue inflows from its AI data centre arm, which will take time to build out. The management commentary on the progress of its ambitious data centre foray will be gauged.

“TCS has not yet announced finalisation of land purchase for the AI datacentre buildout in its hyper-vault business. Post land finalisation, the AI datacentre build-out would take 18 months,” said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Nayak, in a note dated 2 July.

Any new commentary on the AI-led deflation after the launch of new AI models will also be tracked.

The company has completed a year since it embarked on its largest layoff drive, letting go of 12,000 employees by March. In this backdrop, the management’s commentary on fresher hiring this year will also be tracked as AI advancements pose further threats to IT services firms.