Tata Consultancy Services (TCS) closed FY26 with a modest recovery in quarterly growth, but not enough to offset a broader slowdown that pushed it into its first full-year revenue decline in dollar terms since listing.
The results underscore a shifting demand environment, where macro uncertainty and the early impact of artificial intelligence (AI) are beginning to weigh on the IT services giant’s traditional growth model, even as the company expects a gradual recovery in FY27.
On Thursday, TCS reported a 0.5% decline in full-year revenue in dollar terms to $30.08 billion, alongside a 3.5% rise in net profit. In the fourth quarter, revenue grew 1.5% sequentially to $7.62 billion, indicating a mild pickup in momentum toward the end of the year.
Much of the annual decline was driven by weakness in its India business, whose revenue fell 32% during the period.
In rupee terms, revenue trends differed due to currency movements. Fourth quarter revenues registered a 5.4% sequential rise to ₹70,698 crore and full-year revenue rose 4.6% to ₹2,67,021 crore.
The company’s management struck an optimistic note on the outlook for FY27, amid heightened macro volatility, particularly due to the West Asia conflict.
K. Krithivasan, chief executive of TCS, said during the post-earnings analyst call on Thursday that despite global uncertainty, the company continues to see strong client engagement and long-term deal commitments, positioning it for improved performance in the coming year.
The management’s upbeat commentary comes as the company has struggled to grow more than 5% in the past three years, slower than peers Infosys Ltd and HCL Technologies Ltd. At 19.28% on the BSE, its shares have also fallen the highest among peers since January.
Not surprised
To be sure, the fall in full-year revenue was anticipated by experts, with TCS’s final number beating a Bloomberg estimate of 46 analysts of $28.55 billion.
“Results are in line with expectations; a revenue decline was baked in last year itself,” said Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities.
“TCS must double down on winning more deals in its BFSI, consumer, and energy and utilities, and these would probably drive growth in the year. Additionally, bagging more legacy modernisation deals and AI-related client business focus may drive growth going forward,” Nayak added.
Banks, consumer companies, and utilities companies make up more than half of the company’s full-year revenue.
Clients not AI-ready
On AI, the company said that while customers want to accelerate adoption, clients lack AI-readiness.
“We’re working with our customers to address this gap by upgrading their infrastructure to be scalable and secure, modernizing their core applications and setting up modern data foundations,” said Aarthi Subramanian, chief operating officer of TCS, during the company’s analyst call. “A significant part of the technology spend is being invested in these areas.”
A second expert said TCS’s revenue decline indicates that AI is testing the IT services industry’s core model.
“Clients are no longer buying effort, they are demanding outcomes,” said Phil Fersht, chief executive of HFS Research.
“AI is compressing delivery timelines, reducing headcount intensity, and forcing providers to deliver more value for less revenue in the short term,” Fersht added. “That creates a very real tension: strong bookings on one side, but muted revenue realization on the other.”
TCS reported $2.3 billion in annualised AI revenue for the January-March 2026 period.
Profit jump
Meanwhile, the company’s net profit for the full year jumped 3.5% to $5.94 billion. This came despite $157 million in severance-related payments to employees who were let go and also a one-time impact from labour codes, which will raise gratuity payments to employees.
Its profitability rose 70 basis points to 25% which the management primarily attributed to the layoffs. A hundred basis points equal 1%.
Samir Seksaria, chief financial officer of TCS, said the company successfully mitigated headwinds by improving business mix, productivity and realization by 100 basis points.
“Rebalancing of the pyramid helped by 80 basis points. And support from currency also benefited margins by another 190 basis points,” he said during the company’s post-earnings analyst call.
This is in line with previous years, when the company has traditionally maintained the highest profitability amongst its peers.
More large clients
Another silver lining was the company’s increase in large clients fetching upwards of $100 million annually, which rose by two last fiscal to 66.
In December, the company won a mega deal valued at more than $1 billion in revenue over 10 years from Telefónica UK, the British arm of Spanish telecom giant Telefónica. The company renewed its billion dollar IT transformation deal with UK-based retailer, Marks & Spencer, and also bagged a mega deal with a US-based healthcare and pharma company.
The increase in margins came with a decrease in headcount. TCS ended last fiscal with 584,519 employees, down by 23,460 from the year ago. Much of this can be attributed to its largest layoff drive last year. In July, the company said it would give marching orders to 12,200 middle and senior-level employees who could not be reskilled.
According to a Mint report dated 6 April, at least 300, or 16% of its senior executives left the company since it announced layoffs. The company incurred $157 million in severance-related costs last fiscal year. The management also announced a company-wide wage hike for all eligible employees with top performers getting ‘double-digit’ hikes.
