TCS Q4 Earnings: 5 themes to watch out for

Revenue growth

Analysts expect TCS to report a sequential decline in revenue growth, as its Rs 15,000-crore BSNL project nears completion.

“We forecast flat revenues in constant currency (CC) for the international business and $30 million decline in BSNL revenues. The net result is 0.3 percent decline in revenues in CC. The benefit of rupee depreciation will be neutralised by promotions and investments in business, resulting in disappointing margin performance,” analysts at Kotak Institutional Equities said in a note.

According to Centrum, the ramp down of BSNL deal, with cross currency headwind of around 40 basis points (bps) will bring down revenue growth by 0.2 percent sequentially.

Macroeconomic triggers driven by IT spending cut by the US government’s department of government efficiency (DOGE), AI disruption and demand uncertainties have haunted IT services companies hoping for a growth revival in FY26.

Analysts at Nuvama expect operating margins to remain flat QoQ, expecting “BSNL tailwinds to come with a lag.” Last quarter, TCS’ margin stood at 24.5 percent.

“We will watch out for outlook on US macro amid the tariff uncertainty and margin recovery trajectory,” Nuvama’s said in a note.

Demand outlook

While overall mega deals have been slower to come, industry experts said the annual contract value has picked up signalling recovery in discretionary spending.

Analysts at Kotak expect TCS to report $11 billion in deals wins for Q4, while a steady growth, it will be lower than $13.2 billion reported in the year-ago period on the back of some large renewals, which may be missing this year.

“Focus will be on reasons for struggle for growth in international business, which has been insipid due to ramp-downs and modest deal wins,” the Kotak note said.

Investors will closely track management commentary on discretionary spending recovery, especially in the US and Europe, impact of Trump’s tariffs on the FY26 outlook and levers in place to defend margins.

Trump’s tariff impact

TCS’ earnings will be the first quarterly and annual announcement by an IT services major after Trump’s tariffs take effect.

Analysts have flagged higher than expected tariff of 26 percent on Indian goods. Trump’s tariff war is fanning fears of a recession and a slowdown in North America, which accounts for nearly 50 percent of TCS’s revenue.

“We see the very foundations of the IT services industry being rattled to the core,” analysts at HFS Research said, highlighting the uncertainties ahead.

In the Q3 earnings conference, TCS CEO K Krithivasan had said, “Our deal bookings have been good, particularly in banking, financial services (BFS) and in North America. Once the new administration comes in, that will also remove any uncertainty because once the policies become clear the lack of direction would be removed or so we hope.”

“All of them put together, we see there would be more confidence and discretionary programmes coming into next financial year.”

Hiring plans

TCS planned to hire nearly 40,000 freshers in FY25, and aiming to intake more freshers in FY26.

While peers such as HCLTech and Infosys have been cautious of AI disrupting existing business models, the Tata Group company has maintained that artificial intelligence will create more jobs. It is only changing the way the way certain roles are done.

However, in the December quarter, TCS reported a net decline of 5,370 employees, marking a reversal after two consecutive quarters of headcount growth.

Since hiring plans and headcount are closely linked to demand and growth expectations of IT firms, this will be closely watched.

With Trump’s policy tweaks for H-1B visas in the US, offshoring will also be in focus.

Gen AI pipeline

Amid the uncertainties around discretionary spending, IT firms will focus on developing AI use cases and offering productivity gains and keeping the customers engaged.

TCS last reported that it was managing more than 600 AI and Generative AI projects either in production or development in Q2, while proof of concepts were moving steadily to production in Q3.

The company’s commentary on generative AI/ AI deal pipeline will also be watched closely.

“A large hyperscaler forced many vendors to price in AI-efficiency into the pricing model. Adoption of such a stance by a wider set of clients will be keenly watched. In addition, strength of GenAI practice across many companies and ability to retain part of the efficiency will be the area of focus,” the Kotak note said.

Recently, the world’s largest IT services company Accenture’s new bookings in Generative AI (Gen AI) contributed $1.4 billion, or 7 percent, of the company’s $20.9 billion in new bookings for Q2FY25.

The Dublin-based services company generated approximately $5.6 billion in Gen AI revenue since it began reporting these figures separately.

Also read: Indian IT's guidance, deal pipeline to shed light on Trump tariff impact: Five factors to watch