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TCS tops quarterly revenue forecasts, eyes stronger growth in second half

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Tata Consultancy Services (TCS) exceeded second-quarter revenue estimates, lifted by growth in its banking, financial services, and insurance (BFSI) segment, and said it expects better performance in the latter half of the fiscal year. The results have bolstered optimism for India’s $283 billion IT industry, which has faced weak client spending amid global uncertainty.

Sales for the quarter ending September rose 2.4% to ₹657.99 billion ($7.4 billion), surpassing the ₹650.86 billion forecast. Profit edged up 1.4% to ₹120.75 billion, though it fell short of analyst projections due to ₹11.35 billion in severance costs linked to a planned 2% workforce reduction affecting 12,200 employees.

CEO K. Krithivasan said deferred projects had decreased and expressed confidence that AI solutions and deeper client engagement would drive growth momentum in the second half. The BFSI unit grew 1%, offsetting declines in the consumer, healthcare, and manufacturing sectors.

TCS also announced plans to establish a new AI-focused business with a 1 GW data center in India, expected within five to seven years. Analysts estimate the project could involve up to $5 billion in capital expenditure and make TCS one of India’s top five data center operators.

Order bookings hit $10 billion, up from $9.4 billion last quarter, showing signs of steady recovery in global demand despite new U.S. outsourcing tax and visa challenges.

Wipro Shares Surge on Optimistic Demand Outlook

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Shares of Wipro (WIPR.NS) surged approximately 8% on Monday, positioning the company for its best day in nearly four years. This sharp rise followed a positive earnings report and an optimistic outlook for future demand, echoing trends seen in its larger IT peers.

Key Highlights:

  • Strong Q3 Performance: Wipro reported better-than-expected third-quarter profits, signaling a recovery in demand within the IT services sector.
  • Optimistic Outlook: The company forecasts a 1% sequential revenue growth for the current quarter, compared to no growth last quarter. Wipro’s CEO, Srinivas Pallia, attributed this to a gradual return of discretionary spending despite ongoing macroeconomic challenges.
  • Improved Forecast: Wipro’s guidance for the upcoming quarter reflects a brighter outlook, with analysts noting that deal bookings—especially small- to mid-sized deals—point to a revival in discretionary tech spending.
  • BFSI Sector Growth: Wipro’s banking, financial services, and insurance (BFSI) segment saw an 11% increase in revenue, indicating a resurgence in spending in this key area.
  • Analyst Optimism: Following the positive earnings, at least eight brokerages raised their rating on Wipro’s stock, and 16 increased their price targets. Analysts also highlighted the company’s impressive operating margin, which reached a three-year high of 17.5%, driven by efficient deal execution.
  • Sector-Wide Optimism: Wipro’s outlook mirrors that of its larger peers, such as TCS, Infosys, and HCLTech, signaling a broader recovery within the $254 billion Indian IT services sector, which had struggled in recent quarters due to economic uncertainty and inflation.

Tech Mahindra Focuses on Expanding BFSI Segment to Close Gap with Larger Rivals

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Tech Mahindra, India’s fifth-largest software services exporter, is intensifying its efforts in the banking, financial services, and insurance (BFSI) sector to bridge the revenue gap with its larger competitors. CEO Mohit Joshi, who took charge in December 2023 after two decades at Infosys, aims to increase the contribution of BFSI to Tech Mahindra’s total revenue from 16% to 25% by March 2027.

Focus on BFSI Expansion

Joshi acknowledges that while the company has historically relied on telecom clients for revenue, the BFSI sector represents a more lucrative and growing opportunity. India’s $254 billion IT sector sees some peers generate as much as a third of their revenue from BFSI, and Joshi intends to ensure Tech Mahindra captures a larger share of this market. “We still have a lot of room to catch up,” he noted.

Targeting Core Banking and Insurance Services

Tech Mahindra will focus on key segments within BFSI, including core banking, payments, asset and wealth management, custodian services, and insurance. These areas are among the largest technology spenders, with large banks spending over $10 billion annually on tech services, making it a crucial area of growth for Tech Mahindra. Joshi’s leadership has already strengthened the company’s BFSI division to tap into these opportunities.

Role of Generative AI in BFSI

Joshi views generative artificial intelligence (GenAI) as an enabler rather than a threat to the tech services sector. He believes that AI will increase the demand for technology services, especially in sectors like BFSI, rather than diminishing the need for developers. “GenAI is the best spokesperson for why we need more money to be spent on technology,” Joshi said, adding that the demand for developers will continue to grow due to the increased complexity of tasks.

Human Element in Customer Service

While some fear AI could replace human roles in customer service, Joshi remains skeptical about a widespread shift to AI-driven contact centers. He emphasized that for critical issues, customers will still prefer human interaction over AI solutions.