Uncertainty cannot last long, FY26 international business revenue will be better than FY25: TCS CEO K Krithivasan

TCS CEO K Krithivasan

Country’s largest software exporter Tata Consultancy Services (TCS) reported a lacklustre performance for the first quarter of the financial year 2026. Although the net profit, operating margin and deal wins reported were strong, the management’s bleak outlook on the macroeconomic uncertainties causing decision-making delays and poor sequential revenue growth, led to its stocks tumbling down by nearly 3.5 percent on July 11. The ripple effect was also found on the other IT stocks.

In an interview with Moneycontrol, TCS CEO and MD K Krithivasan discussed the company’s Q1 performance, what lagged, expectations for FY26, impact of Trump tariffs, new employee billability policy and more.

Edited excerpts:

It's a beat on net profit and margins. Revenue a little below what the market polls were saying -- a -3.3 percent decline year on year in constant currency terms. Q1 is traditionally the strongest quarter for a lot of IT companies. So can you take us through what you're seeing and by when do you expect things to improve?

I want you to see the context overall. When you say -3.3 percent sequential degrowth, this was contributed to a great extent by the program on BSNL coming to a close. So, that contributed almost about -2.8 percent of the decline. And international revenue sequentially degrew by -0.5 percent. But the circumstances we described last quarter in some places, that actually worsened in terms of projects getting delayed or paused.  There are situations where there are some ramp downs in some of the existing programs, that led to this degrowth.

We were expecting some decent growth in Q1, in international markets, at least. But because of the challenges in the macro, we saw these project delays and some amount of scope reduction leading to the negative growth.

Can you tell us a little more about these project delays? Were there cancellations and which sectors, geographies drove this?

There were very few cancellations; it was more delays or scope reduction. In some places where you expected the project to be finalized and start the work, there were decision making delays.

These are broad categories of issues I could think of. But, from a geography or sectoral perspective, I would say probably Europe had a bigger issue in terms of degrowth. North America saw a very small growth. It's about 0.1 percent sequential growth. And UK also saw a degrowth. But I don't think there is more colour in terms of geography or sector.

I would say it was seen across multiple sectors. For me, the vertical that did well was technology and software services. And within manufacturing, I could say industrial and aerospace did well. Auto had a problem. Within BFSI, capital market was okay, but banking and insurance had problems.

But I would say overall sentiments were similar across the board, more or less.

How much is this is due to Trump tariffs, because every day there's a new announcement, in terms of country specific tariffs, letters going out?

Different industries are seeing have varying degrees of impact. For instance, if you take retail and consumer business, they're more dependent on imports. There is an expectation that sales volume could go down. And that is making them wait to see, have some clarity on how they are going to tweak the supply chain to ensure the volumes are up. Manufacturing too has an issue because it's heavily dependent on global supply chain. Because of this, you find the knock-on effect in a few other industries.

Similarly, now at least the new bill is signed. But, till it was signed, there were questions around what would be the impact on Medicare, healthcare expenses. So, now I'm still expecting with the bill having been passed, there would be some clarity on the Medicare, Medicaid, healthcare, and healthcare insurance, life sciences area.

Also, why has healthcare industry that's said to be immune to shocks, has declined nearly 10% YoY in Q1?

Healthcare is immune in the sense that people fall sick all the time and they need treatment all the time. But it's more nuanced than that.

As I was saying that in the US there is Medicare, there is private health insurance and so many different aspects. Due to the laws that are getting passed, each of these providers have different dynamics at work.

So, you find that they are not investing on new transformational programs or waiting to see what the outcome of these bills will be before they invest in new transformation. It's essentially a question of delaying those programs that is causing the reduction in our revenue in the healthcare segment.

We are seeing a decline in year-on-year growth after several quarters in the India geography. So how much of it is due to the BSNL deal winding up? Is this going to continue?

It's significantly impacted because of the BSNL deal. But if you take BSNL out, we had a strong growth in the services side in India. Of course, BSNL is a big number. We could not compensate sufficiently. But non-BSNL part of India had a good growth. Particularly the services part of India had a very good growth.

TCS has been quite early with its Sovereign AI, Cloud, Cybersecurity offerings to capture the Indian government’s growing investments into IndiaAI Mission and other programmes. What’s the kind of demand do you see and how big of an opportunity will this be for TCS in FY26?

I don't have the exact numbers in front of me, but we are expecting a strong demand because of a couple of factors. Overall 5G implementation is expected to increase the amount of data being stored, which means the hyperscalers would also want to have more data centers in India. There will be greater requirement for sovereign cloud and keeping the data in India.

So, overall we already started saying government enterprises as well as public sector banks, all of them will have a sovereignty requirement. All of them together, I believe, will drive the sovereign cloud and the India story in terms of data centers, sovereign cloud providers to really increase the demand.

TCS recently made it mandatory for employees to be billed for 225 days a year and that technically reduces the bench timelines as well. What drove this policy? What kind of efficiency benefits do you expect from this? Does this underscore the demand environment for TCS?

It's not an efficiency drive. We just want to ensure associates are able to seek projects and ensure that they remain productive through the year. This number is not a new number either. If people have been on the bench for a long period of time, we continue to encourage them to get allocated very quickly. This is more to put a positive pressure and incentive for them to be allocated and be engaged in client projects.

How has the appointment of Aarthi (President and COO Aarthi Subramanian) and Mangesh (Chief Strategy Officer Mangesh Sathe) as COO and CSO helped? I think the announcement came out mid-May. What has changed since then in terms of your role, their roles?

Primarily Aarthi is looking at all our service lines, and she is also looking at a couple of verticals. With AI becoming very, very key, we want to ensure that AI doesn't remain as an isolated service line, but AI has to be infused in every service we offer to our customers. There's a need to stitch multiple service lines, cloud, data, AI.

All of them have to be stitched together. Some of the existing services that what we call so-called traditional services in terms of application maintenance, BPS, all of them need more AI infusion to bring in more productivity and ensure our customers get the benefit of these technologies. So, Aarthi is currently focused on bringing these services together.

Also, wherever there is an opportunity to give a multi-service service line play to our customers, looking at how do you provide one end-to-end story infusing AI across all these lines.

Magesh is primarily working on enhancing our focus on mergers and acquisitions. He is working on the customer needs, creating strategies we need for each one of those service lines. So, those are the areas he is working on.

One would argue that at a time when there are structural opportunities from AI, why not reinvesting back more for growth? Because growth has been anaemic for the last few quarters.

TCS probably is one of the companies where we have invested, trained almost 500,000 of our associates in the initial training. Now, this quarter we announced more than 100,000 of our associates have been given higher order training in AI. So, there is a continuous investment in AI and also WisdomNext platform has been upgraded.

I don't think there is any dearth of investment as far as AI goes. We have not been holding back our investment anywhere.

Most of your peers have GCC business units and dedicated leadership for it. What’s TCS gameplan here? Are you expecting more projects here and share some numbers?

Our approach is very simple. We are helping our customers first of all understand why they have the strategy, why they want to come in here and establish a GCC. Once they are very clear whether they are doing it for cost reasons or capability reasons, we are helping them in choosing the appropriate location, choosing more importantly an operating model. Because if we don't have the right operating model for a GCC, you are not likely to reap the benefits. You'll only end up having higher costs.

So, we help them in establishing the right operating model and then we do support them. One of the areas Mangesh is working on is supporting our customers in establishment of GCCs.

As things stand, do you expect it to get better? Will FY26 be better than FY25?

As of the international revenue of FY26, I am still confident it will be better than FY25 international revenue. But we are still trying to push the overall revenue to be much better in the coming quarters. I am still optimistic. This uncertainty cannot last long. The clarity should emerge and spend should come back.

We are very focused on the emerging markets as well, be it MEA (Middle East and Africa) or APAC (Asia Pacific) or LATAM (Latin America), outside of Australia. We are very keen to diversify our revenue stream as well.

Also read: TCS Q1 FY26 – Is it a long-term add despite the quarterly disappointment?