TCS chief cautious of economic slowdown, but remains confident of future growth

K Krithivasan, CEO and MD, TCS

Tata Consultancy Services Ltd (TCS) stays cautious about the possibilty of an economic slowdown, with chief executive K Krithivasan stating that the worst may not be over yet, though he sounded confident of growth as the company sits on a strong order book of $42.7 billion and aims to outperform its last year's performance in FY25.

In an interview with Mint, Krithivasan highlighted the ongoing uncertainty in key markets such as the US, Western Europe, and the UK, where clients are re-evaluating their spending and making quick adjustments. "It would not be appropriate to say that the worst is behind us," Krithivasan remarked. "We do not have the comfort or confidence to make such a statement at this time."

The cautious outlook follows TCS's report of a 1.93 percent sequential dollar revenue growth in the April-June quarter, surpassing analysts' expectations. The company's headcount also increased by 5,452 from the previous quarter, reversing a year-long trend of workforce reductions. This positive news drove TCS shares up nearly 7 percent on Friday.

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For FY24, TCS achieved a revenue of $29.1 billion, reflecting a 4.1 percent growth, which is the second-slowest annual growth rate since its IPO in August 2004. The slowest growth was recorded in the pandemic year of FY21 at 0.7 percent. Mint quoted analyst Keith Bachman from BMO Capital Markets, saying that while the IT services sector's estimates seem to be stabilising, there is still not enough conviction to predict a significant improvement in CY25 growth.

Tata Consultancy Services has maintained its earlier view that the current year will improve over the last, driven by growth across global operations and strength in major business verticals.

"There's nothing new to add in terms of market sentiments. However, as mentioned last quarter, we anticipate FY25 to surpass FY24, and we maintain that stance. We believe it will be a stronger FY25 compared to FY24," he said at a press conference to discuss the June quarter numbers.

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Krithivasan, in conversation with Mint, also addressed concerns about Generative AI (GenAI), dismissing fears that it would render many jobs obsolete. Citing Roy Amara's adage about technology's impact being overestimated in the short term and underestimated in the long term, he emphasised that while GenAI will transform certain areas, it will not eliminate the need for human workers.

"Unlike some past technologies like Blockchain, GenAI has a much larger impact," Krithivasan said, predicting that future coding practices will evolve significantly, but the demand for human talent will remain strong.

In contrast to Accenture Plc, which reported winning $2 billion in GenAI deals in the first nine months of its fiscal year, TCS has not quantified its business from AI tools. However, Krithivasan asserted that TCS is not lagging, as the company is integrating AI into nearly all aspects of its operations.

"The key is how we are helping or bringing differentiation for our clients. We should resist riding on a particular hype cycle and focus on how we can help our clients," he stated.