Volatility expected in near-term on customer spending: TCS Chairman N Chandrasekaran

Natarajan Chandrasekaran

Even as Tata Consultancy Services (TCS) remains resilient, the IT services major will see volatility in demand in the near term across different markets and customer spending, said chairman N Chandrasekaran, at a time when macroeconomic challenges are making the business environment tougher for IT services companies globally.

“I believe that the growth for medium to long term is going to be strong. But in the nearby quarters there will be volatility in different markets on customer spending, especially in discretionary projects. It will go across sectors—some places it will be BFSI, others it will be manufacturing or retail,” he told shareholders at the company’s annual general meeting (AGM) on June 29.

According to Chandrasekaran, despite the near-term challenges the company is well-positioned to capture the opportunities and growth coming from trends like artificial intelligence, energy transition and supply chain shift and need for new skills and talent of the future. All of this will help the company grow eventually.

“Overall, whether it is cloud, IoT, predictive AI, generative AI etc., these are trends that augur extremely well for the company,” he said.

“Having said that, when there is uncertainty in the global economic situation and higher inflation or slowing growth, companies will calibrate their spending. Whether it will happen in this quarter or after two quarters, it will happen. So certain discretionary spending companies will make a choice. It also depends on the amount of capital they want to spend at this point in time,” Chandrasekaran observed.

FY23 performance

TCS remained resilient in terms of orders despite the ongoing Russia-Ukraine conflict and geo-political tensions that have disrupted the smooth functioning of global supply chains.

“There has been a surge in inflation, especially in the developed markets. In this environment, the demand for your company’s services has shown remarkable resilience,” he said.

CEO K Krithivasan said, “Despite the macroeconomic overhang throughout the year, we recorded a strong order book throughout the year with a total TCV of $34.1 billion. It is important to note that we exited the year with an order book of $10 billion, the strongest in the four quarters, despite the banking crisis in the US and the resultant uncertainty.”

The company’s strong revenue growth came with industry-leading profitability, he said.

Key growth drivers in FY23 were M&A integration or divestitures, product or business model innovation, customer experience transformation, and data and analytics for improved decision-making. Cloud transformation too continues to aid growth with an emphasis on execution.

Bullish on AI

Chandrasekaran remained bullish on AI and said that TCS is now becoming more AI-centric.

“Over the past decade, there has been a rapid evolution of digital technologies, bringing about a transformation across every industry. Now, the advancements in AI have made AI transition a central focus…There is a transition already underway from predictive AI to generative AI,” he said.

The majority of businesses are still adopting predictive AI and are on the journey of capturing large volume of data, harnessing the power of cloud and IoT, Chandrasekaran said. There are varying levels of adoption in companies across sectors.

2023 so far

In the first six months of 2023, the company has managed to grab five large deals in the United Kingdom, where the company is the largest IT and software services provider.

These deals include a $1.1 billion contract with UK’s Nest, the $723-million deal from insurer Phoenix Group, the Marks & Spencer deal and the 10-year contract with the Teacher’s Pension Scheme in England and Wales, amidst a challenging macro environment in the region.

Meanwhile, in the US, a $2-billion deal and a 10-year contract with Transamerica Life Insurance were terminated, citing macro environment challenges and changing business priorities. TCS got the deal in 2018 and the pending work will be wrapped up in the next two and a half years.

Closer home, in India, a consortium led by TCS bagged a $1.8 billion deal for government-owned telco Bharat Sanchar Nigam Limited (BSNL).