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TCS misses revenue estimates amid tariff-driven client caution

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Tata Consultancy Services (TCS), India’s largest software-services exporter, reported quarterly revenue below analyst expectations on Thursday, as client spending slowed due to ongoing uncertainty around U.S. tariffs. The revenue miss has sparked concerns over demand for India’s $283 billion IT sector and negatively impacted shares of U.S.-listed Indian tech rivals Infosys and Wipro.

TCS CEO K Krithivasan noted on a conference call that delays in decision-making and project launches related to discretionary spending have persisted and intensified during the quarter. He said it is “too early” to predict when growth will return but suggested that clarity might emerge by late July or early August, depending on the U.S. spending bill’s progress.

TCS reported consolidated sales of 634.37 billion rupees ($7.40 billion) in Q1, rising 1.3% year-on-year but falling short of the 646.66 billion rupees analysts had forecasted. Four of TCS’s six verticals saw revenue declines compared to the previous year, with only banking and financial services (up 1%) and technology services (up 1.8%) showing growth.

Total order bookings dropped to $9.4 billion in the quarter, down from $12.2 billion in the previous quarter but higher than $8.3 billion a year ago.

Research analyst Sagar Shetty from StoxBox highlighted that the weak top-line numbers reflect ongoing client caution, a trend likely to affect other tier-1 IT firms and potentially lead to downward revisions in revenue guidance. HCLTech, Infosys, and Wipro are set to report results later in July. Following TCS’s announcement, Infosys shares fell 3.3% and Wipro shares dropped 4.2%.

Despite the revenue shortfall, TCS’s net profit rose 6% to 127.60 billion rupees, beating analyst expectations largely due to a delayed wage hike and higher other income.

Wipro Secures $650 Million Deal with British Insurer Phoenix Group

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Wipro, India’s fourth-largest IT services provider, has secured a significant 10-year deal worth 500 million pounds ($645.4 million) with British insurer Phoenix Group. This deal, announced on Wednesday, marks Wipro’s second major contract this financial year.

Deal Details

The contract focuses on Phoenix Group’s ReAssure business, where Wipro will handle the administration of life and pension business operations. As part of the agreement, Wipro will expand its presence in the United Kingdom, setting up operational and technology hubs that will include staff from both Wipro and Phoenix Group. Some employees from Phoenix will transition to Wipro, though the exact number of employees involved has not been disclosed.

Impact and Strategic Growth

The deal is a significant step for Wipro, especially as mega contracts like this one are crucial for driving revenue in the highly competitive IT services sector. In June 2024, Wipro announced another major $500 million deal with a U.S. communications service provider. The Phoenix Group agreement highlights Wipro’s ongoing growth and expansion in international markets, particularly in the United Kingdom.

Market Reaction

Despite the announcement, Wipro’s shares closed 1.3% down on Wednesday, with the statement being released after the Indian stock market closed for the day.

Indian IT Sector’s Fiscal 2026 Outlook Dimmed by Weak US Demand and Trade Tensions

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India’s information technology (IT) sector, one of the worst-performing industries this year, is unlikely to see a strong recovery in fiscal 2026, according to analysts. The outlook remains uncertain, following recent warnings from Accenture, the world’s largest IT services firm, which cited weak discretionary spending and lackluster demand from its clients.

Accenture’s quarterly report flagged that client budgets remained flat, with little growth in discretionary project spending. The company also noted that global trade tensions, exacerbated by new U.S. tariffs, have further dampened prospects in the United States, a key market for Indian IT firms.

Amit Chandra from HDFC Securities noted that the last few months have heightened uncertainty about the first half of fiscal 2026 and how this will affect the overall recovery rate for the year. As of now, India’s IT index has dropped 15.3%, marking its worst performance since June 2022. Major firms such as TCS, Wipro, Infosys, and HCLTech have seen losses ranging from 11.2% to 18.1% this year.

Analysts from Kotak Institutional Equities warned that a soft recovery in demand and fewer mega deals in fiscal 2025 will result in slower revenue growth in fiscal 2026 for Indian IT companies. The impact of early-stage adoption of generative AI is also expected to present challenges, they added.

Research from Citi and Morgan Stanley forecast modest growth, with Citi estimating 4% revenue growth for IT companies in fiscal 2026, similar to fiscal 2025, and Morgan Stanley highlighting subdued client spending as a key factor limiting growth. However, sectors like banking, financial services, insurance (BFSI), and healthcare have shown some signs of recovery, although many clients are currently in a “wait-and-watch mode,” potentially leading to further reductions in spending.

Accenture’s report also indicated that U.S. clients have delayed or canceled new contracts, partly due to the Trump administration’s policies, which could increase competitive pressures in other segments, despite Indian IT companies having limited exposure to these delays.