Business

IIE DIGITAL DESK : Tata Consultancy Services (TCS), once India's IT bellwether and a favorite among investors, is witnessing a sharp share price collapse. The stock has tumbled nearly 33% from its all-time high, shedding 25% year‑to‑date in 2025, even as the company posted steady Q1FY26 earnings and continued dividend payouts. The steep decline comes in the wake of TCS’s announcement to cut approximately 2% of its global workforce, impacting more than 12,200 jobs, primarily among middle and senior grades—a move that has rattled investors and triggered broader market jitteriness.

The company’s statement elaborated that the layoffs are part of a broader strategy to become “future-ready” as it expands into newer markets, scales AI deployment, and navigates a sluggish global demand climate. TCS emphasized that the decision reflects a growing skill mismatch, rather than cost-cutting or automation pressures, and asserted that the restructuring would proceed without disrupting client service delivery .

CEO K Krithivasan commented that releasing associates whose deployment is no longer feasible was "one of the toughest decisions" during his tenure. He stressed that while AI and technological shifts are reshaping the workforce, the layoffs are largely due to employees being unable to align with new operational models. Severance packages, placement assistance, extended insurance, and counselling support have been extended to those affected .

The announcement immediately impacted TCS shares, sending them down 1.7% intraday, trading as low as ₹3,081.60 after opening near ₹3,110. Analysts at Citi maintained a “sell” rating with a ₹3,135 price target, citing concerns over margin strain, sluggish demand, and execution risks amid a shift in business dynamics .The broader Nifty IT index declined over 1%, pulling down other heavyweight IT firms such as Infosys, Wipro, and HCL Technologies by as much as 2% .

TCS's Q1 financials showed modest growth: consolidated net profit rose by 5–6% to ₹12,760 crore, and revenue increased 1.3% year-over-year to ₹63,437 crore—though revenue in constant currency terms declined about 3%. Despite the decent numbers, optimism has been muted as geopolitical uncertainty, tariffs, and delayed client decisions continue to weigh heavily on demand .

This is TCS’s largest-ever layoff, signaling a broader structural shift within India’s IT ecosystem. Unions representing IT employees have now petitioned the Labour Ministry to halt terminations, urging the company to reconsider its plan and protect stability in the sector . Critics warn that this move undermines TCS’s long-standing reputation as a stable employer and may precipitate deeper changes across peer companies.

Industry analysts stress that India’s tech sector is undergoing a reset shaped by AI disruption and margin pressures. While TCS posted a strong performance relative to peers, its stock trajectory places it among the worst-performing Nifty‑50 stocks in 2025—a position shared by retail giant Trent, which has also fallen nearly 30% this year.

In technical markets, equity analysts note that TCS broke below a 16-year upward trend line, suggesting possible further downside of up to 16% unless sentiment turns. Some believe the current correction could still offer long-term entry points, provided future guidance and execution remain strong .

TCS’s chief concern now lies in balancing the immediate backlash with its longer-term vision of becoming leaner, tech-forward, and aligned with AI-driven client needs. While fundamentals remain intact—including strong free cash flow, zero debt, and consistent dividends—investor confidence is undermined by uncertainty over softening demand and transformative internal restructuring .

As resignation letters arrive and employee unions mobilize, the industry watches closely. Many highlight that the layoffs—though necessary in the digital transition—may mark the beginning of broader rationalization across India’s once-insulated tech giants.