TCS Q1 results preview: Five themes to watch out for

TCS

India’s largest software exporter Tata Consultancy Services (TCS) will kick start the first quarter earnings season for the financial year 2026 on July 10, as the information technology sector faces multiple headwinds.

A slowdown in demand, uncertainties driven by global trade tensions and artificial intelligence boom are the largest challenges facing the IT sector.

While IT firms, including TCS, were cautiously optimistic about their growth in FY26 based on their deal pipeline in the previous quarter, their commentary will be crucial.

Here are the five things to watch out for in TCS’ June quarter report card:

Revenue growth

The Street is expecting a sequential decline in revenue as the BSNL deal revenue tapers off. Kotak Institutional Equities expects a 0.4 percent drop in constant currency, while BNP Paribas expects a 1.3 percent plunge in CC from the previous quarter.

ICICI Securities has projected a sharper decline of 3.4 percent CC, “led by $300 million quarterly ramp-down from BSNL deal, partly offset by resilient growth in international markets led by BFSI”.

On the business side, TCS is looking for projects within India and across the world to replace the BSNL revenue.

In the previous quarter, the company launched a slew of sovereign AI, cloud, and cybersecurity offerings to capture the increased investments from the government into these emerging technologies at a population scale.

Also read: IT Q1 earnings preview: From Gen AI to hiring trends - Five key factors to watch

Margin pressure

While the recent rupee depreciation and cross-currency benefits could give a boost to the operating margins, it would likely be offset by slow revenue growth.

“We expect EBIT margins to decline YoY despite the deferral of wage revision, normally scheduled in April of every year. The impact on margins is due to a lack of any leverage from growth. Despite tailwinds from currency, EBIT margins will likely stay flat QoQ,” analysts at brokerage house Kotak said in a note.

Ebit is short for earnings before interest and taxes.

BNP expects the margin to contract to 23.9 percent from 24.2 percent in the previous quarter.

Discretionary spend outlook

Despite the slowdown amid conflicts and trade tensions across the world, industry analysts say the situation is still better than expected.

The Street will be looking for further commentary on budgets, the impact of US President Donald Trump’s tariffs on various verticals, demand outlook, etc.

Companies like TCS have continued to see a steady flow of deal wins, with the total contract value pegged between $8 and 9 billion for Q1.

Some of the deal wins reported by TCS in Q1 include AI, data analytics, and digital innovation driven deals with Schneider Electric, Marathon de Paris. The other agreements include platform modernisation deals with ICICI Securities and Oman’s Dhofar Insurance; BSNL deal extension for engineering, testing, maintenance of 4G mobile network and digital transformation deal with Virgin Atlantic.

Hiring and wage hikes

TCS surprised in the previous quarter by deferring wage hike cycle, which usually began April 1, underscoring the macroeconomic challenges the industry faces.

During the quarter, the IT services giant made another HR policy change, making it mandatory for all associates to be billed for at least 225 days annually, which reduces bench timelines for employees.

Commentary on these, hiring plans for both freshers and laterals and the impact of AI on jobs will be closely watched.

As of now, TCS plans to hire more than 42,000 freshers this fiscal.

Gen AI pipeline

Generative AI (Gen AI) and agentic AI have emerged as the new growth frontiers for IT majors, with several firms doubling down on related services and solutions.

According to BNP Paribas and Elara Securities, companies such as TCS, Infosys, and Wipro have witnessed strong traction in Gen AI-led deal discussions and pipelines.

However, apart from Accenture and TCS, most Indian IT firms have yet to start quantifying Gen AI revenues.

Analysts expect more details on the pace of adoption of enterprise GenAI and its deflationary impact. They will also be waiting for the company to share numbers around Gen AI/AI pipeline and revenue.