TCS CEO flags uncertain demand as inflation crimps spending

Tata Consultancy Services said it was hard to predict a recovery in demand for IT services in the next two quarters as persistent inflation and recession fears pressure client spending in the company’s key markets – the U.S. and Europe.

The comments come after the industry leader reported its slowest quarterly profit growth since 2020 and rival Infosys (INFY.NS) missed third-quarter profit estimates, signaling that the sector’s pandemic boom was fading and international revenue was drying up.

“From our perspective, the (macro) situation hasn’t changed much,” TCS CEO K. Krithivasan said in a post-earnings conference.

The general optimism tied to potential U.S. interest-rate cuts has not resulted in any ground-level certainty or decisions towards new investments, the top executive said.

Indian IT companies have gained prominence since the early 2000s by giving Western clients low-cost solutions, and growing into global giants as outsourcing surged, but some analysts have emphasized a need for change.

“The pain will not go away as the model needs to shift from labour arbitrage to technology arbitrage,” HFS Research CEO Phil Fersht said. “We are going through a genuine inflection point in the IT services industry after 25 years of double-digit (revenue) growth.”

TCS’ consolidated net profit in the seasonally weak third quarter rose 2% to 110.58 billion Indian rupees ($1.33 billion) from a year earlier. It included an impairment charge of 9.58 billion rupees tied to a trade-secrets lawsuit by Epic Systems.

TCS secured deals worth $8.10 billion in the third quarter, down from $11.2 billion in the second quarter. It had secured deals exceeding $10 billion in each of the three preceding quarters.

An 8.1% growth in TCS’ UK market revenue drove a 4% rise in total revenue to 605.83 billion rupees, beating analysts’ estimates of 601.47 billion rupees, according to LSEG data.

Some of the company’s mega deals, valued at $1 billion or more, were based in the UK and may have started “firing”, said Ruchi Burde Mukhija, analyst at Elara Capital.

The company’s North America revenue still fell 3%, while continental Europe rose just 0.5%.

Smaller rivals Wipro and HCLTech are set to report their earnings on Friday.

For results, https://www.tcs.com/who-we-are/newsroom/press-release/tcs-financial-results-q3-fy-2024

Reuters