TCS Shares Slip After Modest Q2 Earnings and AI Venture Announcement

Tata Consultancy Services (TCS) shares were in focus on October 10 after the IT major reported a modest 1.4% year-on-year (YoY) rise in net profit for the September quarter. The stock slipped nearly 1% in early trade as investors reacted to the company’s performance and restructuring costs.

TCS reported a net profit of ₹12,075 crore for Q2 FY25. The company’s revenue stood at $7,466 million in constant currency terms, marking a 0.8% sequential increase, though down 3.3% YoY, reflecting muted global demand in the technology sector.

Restructuring Costs and Layoffs Impact Performance

The company’s quarterly numbers were in line with Street expectations, but the earnings were affected by a ₹1,135 crore restructuring charge. This expense is believed to be linked to ongoing layoffs that impacted more than 12,000 employees.

Despite these challenges, TCS reported a total contract value (TCV) of $10 billion during the quarter. A major highlight was a $640-million deal with Scandinavian insurer Tryg, which boosted deal momentum.

Also Read: Lupin Shares Jump 3 percent on $250 Million Florida Manufacturing Facility Plan

Broad-Based Growth Across Key Sectors

TCS reported broad-based growth in constant currency (CC) terms. The Banking, Financial Services and Insurance (BFSI) segment grew 1.1%, while the Technology and Services vertical rose 1.8% sequentially. These segments continue to be major revenue contributors for the IT giant.

TCS Bets Big on Artificial Intelligence and Data Centres

In a major strategic move, TCS announced plans to set up a wholly-owned subsidiary in India to establish AI and Sovereign Data Centres. These centres will provide infrastructure and technology-enabled services and mark TCS’s entry into the fast-evolving AI infrastructure ecosystem.

The initiative aims to strengthen TCS’s position in the global digital transformation and AI solutions market, which continues to see growing enterprise adoption.

Margins and Market View

According to Nomura, TCS’s EBIT margin improved by 70 basis points (bps) quarter-on-quarter, aided by an 80 bps tailwind from currency movements. The headwinds from salary hikes were largely offset by operational efficiencies and automation benefits.

Brokerage firm Nuvama Institutional Equities noted that TCS shares have corrected nearly 25% year-to-date, now trading at a valuation of 20x FY27 estimated earnings, which is in line with its historical average.

Nuvama maintained a ‘Buy’ rating on the stock but revised its target price down to ₹3,650 from ₹3,950, citing near-term volatility but strong long-term growth prospects.

Investor Outlook

Despite the muted quarterly profit growth, analysts believe that TCS’s long-term fundamentals remain intact, supported by its robust deal pipeline and strategic AI investments. The company’s new AI and data centre initiative is seen as a forward-looking step toward capturing the next wave of digital transformation opportunities.

However, in the near term, investors may continue to see volatility in the stock, given the macroeconomic headwinds and restructuring costs.

Click here to explore: TCS