TCS Results Hint At A ‘Status Quo’ Stance For Now

Indian IT industry’s earnings season has started with TCS’ fourth quarter results. Though Q4 earnings of TCS don’t point out to a demand recovery in the global IT industry, at least it has not indicated worsening. Its management has said that though there were some delays in decision-making in March owing to Trump tariffs, there was no wide-spread panic among clients. This carries a lot of importance. Trump administration’s imposition of tariffs against trading partners has created an uncertain macroeconomic environment across the world.

While equity markets globally have seen sharp moves, there is an increasing fear of a mild recession in the US economy. The subsequent 90-day postponement has raised hopes of bilateral trade deals among US and its trading partners. Experts believe that the impact of tariffs may be somehow reduced due to such deals. Yet, the raging trade war between the US and China threatens to disrupt supply chains across the world. As a result, many verticals like manufacturing, retail, consumer, and hi-tech are likely to be negatively impacted.

Against this backdrop, TCS earnings might have provided some solace. Firstly, its management believes that the disruption arising from tariff is likely to be short-lived. So, enterprises will be able to cope with the changes and spend on technology initiatives. Secondly, it said that enterprises are holding back technology spend for long time now. So, there is a likelihood that companies will spend despite all the uncertainties. This spending may happen in digital transformation initiatives or cost saving projects.

In both ways, clients will not hold back technology projects for long. This augurs well for the global IT industry. Another important thing coming out of its earnings was about deal pipeline. Despite the talks of disruption arising out of AI-led development, deal pipeline of TCS was at a record high during the fourth quarter. Though mega deals were missing, large deal wins were part of the pipeline. It indicates enterprises are slow in adopting AI-powered solutions owing to concerns over outcome.

Moreover, enterprise-grade solutions are not yet matured. AI and GenAI solutions are making waves in the consumer space. However, enterprises are slow in adopting the solutions due to lack of full-proof outcome.

Therefore, all the talks of serious disruption to business models of Indian IT firms are yet to emerge. Rather, IT firms are witnessing greater part of AI in large deals, supplementing their project pipelines. Lastly, TCS added headcount during the fourth quarter, albeit at a slower pace. Overall addition of headcount is an indicator that no large scale redundancy has happened owing to implementation of AI and related solutions.

Though product companies can operate with lean teams, support & maintenance functions require adequate number of resources. Nothing has changed in this regard so far. While the world is witnessing a lot of hype over AI and GenAI-related developments, global IT industry is yet to see any significant disruption. Overall, TCS earning is a message of status quo over any abrupt change seen in FY25.