Mint Primer | Will IT get better or worse? TCS points to cautious growth ahead

How was TCS’s latest earnings?

In FY25 IT bellwether TCS crossed the $30-billion business mark to close at $30.17 billion in revenue. For FY25, revenue grew 3.8%, slower than in the previous two years. FY24 revenue was $29.08 billion. As per the post-results management commentary, until February, TCS was quite optimistic about the fourth quarter. From March it saw uncertainty creeping in, resulting in some project delays. There were some ramp-downs and delays in decision-making. “We believe that in the next few months this uncertainty should settle down and we should be back in business,” said K. Krithivasan, CEO of TCS.

What’s the business environment like?

While the previous fiscal was looking promising with AI proof of concepts slowly converting into deals, the 8 March US order on tariffs impacted decision-making among global clients. Now the US “tariff and pause” policy means companies are unable to plan ahead, leading to delays in outsourcing decisions. For IT services businesses, the impact is seen to be greater in sectors such as metals, oil, automobiles, food, and agriculture. This is because tariffs, along with changes in work visa rules, affect the overall business environment and result in delays, as customers adjust to the new arrangements.

Can non-US demand help ease the uncertainty?

The US accounts for 65% of the IT services business. TCS’s growth in North America (which is 50% of its business) declined 1.8% in FY25. But Europe, Asia Pacific, West Asia and Africa grew 4%, 6.8%, and 11.2%, respectively. Other companies are likely to mirror this, although those with higher dependence on the US will see a greater impact from tariff-related headwinds.

Will there be an impact on GCCs as well?

The growth of global capability centres (GCCs), or captive units of multinationals, has proven to be the silver lining for India as IT firms navigate a challenging business environment. According to Nasscom, there are 1,700 GCCs in India employing 1.5 million. Firms are also partnering GCCs, helping set up the centres. As services have been left out of US tariffs, GCC growth is likely to continue. With large firms such as Citigroup cutting dependency on IT vendors to shift work in-house, captive units will get a push.

What does the order book look like?

TCS’s FY25 order book stood at $39.4 billion. Now the US has removed tariffs on smartphones, electronics and machines for chip making. Global IT services leader Accenture is already seeing headwinds as the US administration’s efforts to reduce federal spending have led to delays and cancellations of new contracts. If Fortune 500 clients hold back spending, it will have a wider impact on the $280-billion sector. As customers wait and watch, the focus will shift to areas less impacted by tariffs.