TCS’s Q1 show misses the mark; what this means for the broader IT landscape

TCS highlighted persistent demand weakness across key verticals.

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

India’ largest information technology services player Tata Consultancy Services (TCS) kicked off the earnings season for the first quarter of the current financial year, and left most investors and experts wanting for more.

The muted demand and weaker commentary led to selling pressure on the entire IT pack, as demand is unlikely to see an immediate recovery. The next quarter will be soft for the sector, as per experts, with all major IT services players seeing continued demand stress across all key verticals.

For the first quarter of FY26, TCS’ net profit rose 6 percent year-on-year to Rs 12,760 crore, from Rs 12,040 crore reported in the same quarter last year. On a sequential basis, profit grew 4.4 percent from Rs 12,224 crore, surpassing Street expectations.

India's largest IT company also said its revenue from operations grew 1.3 percent to Rs 63,437 crore for the April-June quarter. However, on a constant currency basis (CC) it was down over three percent, given strong headwinds across major markets.

According to the management, the current geopolitical situation and economic uncertainty is leading to a cautious outlook among banking, financial services and insurance (BFSI) clients in America. Investments in technology have slowed down, and all discretionary expenditure is likely to remain stressed in the September quarter as well.

Impact across some key verticals:

BFSI: According to the management’s commentary, BFSI clients are looking towards regulatory readiness, data governance, and cost efficiency through technology rationalisation. However, discretionary spending remains under pressure. Softness in US insurance continued throughout Q1 FY26, while it did well in Europe. Banking and financial services continue to remain cautious in Europe and the UK, indicating muted deal conversion for IT players going ahead.

Consumer: The consumer vertical remains one of the most affected verticals as a result of funding delays, project postponements and delayed milestone completion, noted TCS. This may continue in the short-term.

Healthcare: Clients across the life science space are cautious, while pharma players are seeing strong pricing and supply chain issues. More clarity is awaited on Trump’s ‘One Big, Beautiful Bill Act’, which may have a serious impact on hospital operators and medical expenses, further pressuring deal wins. Further, leading companies in the US, UK, Europe and Japan are consolidating vendors while leveraging AI.

Communication & Media: Enterprises in this sector are reassessing their focus areas, according to TCS, and placing greater importance on AI, automation, diversification, cost efficiency, and streamlining their vendor base.

Energy & Utilities: The sector is experiencing a drawback in spending and capital investments, as a result of the evolving policy landscape and ongoing geopolitical turmoil.

However, following clarity on US President Donald Trump’s reciprocal tariffs, the technology bellwether said that international markets are likely to perform better in the current financial year, compared to FY2025, as a result of improved order booking and increased customer enquiries. This poses as a positive for the entire IT pack.

“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 spending should come back,” said TCS CEO K Krithivasan in an exclusive interview with Moneycontrol. 

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.