Can TCS sell its future-ready story to investors?
In the last three months alone, the company announced its largest acquisition since going public, devoted billions of dollars to data center infrastructure and came close to signing a rare multi-billion dollar contract.
On December 10, TCS agreed to acquire technology consultancy firm Coastal Cloud for $700 million in cash; It was the largest deal since its 2004 IPO and a move that was expected to strengthen Salesforce’s software capabilities.
This acquisition comes less than three months after TCS announced its biggest pivot, a $6.5 billion investment over six years to build 1 GW of data center capacity. The move underscores the Mumbai-based firm’s ambitions beyond the traditional IT services playbook.
Another surprise followed. One week after the Coastal Cloud announcement, Mint TCS is reportedly in the process of signing a $1 billion, 10-year contract with Telefónica UK, ending an almost two-year drought in billion-dollar deals.
It wouldn’t be too far to say that TCS now resembles a flashy startup. The burst of announcements follows a volatile quarter marked by layoffs, the appointment of a new chief operating officer and the launch of another AI business unit (the third in as many months).
internal reset
Behind the scenes, TCS is undergoing a structural leadership overhaul and a new tier of executives is coming to the fore. Tata Sons chairman Natarajan Chandrasekaran, newly appointed COO Aarthi Subramanian and CEO K. Krithivasan are promoting middle managers into leadership roles at a time when the old guard is steadily exiting.
Even routine operations are being re-examined under Subramanian’s watch. Leaders are regularly challenged about gaps within service lines and given clear timelines for addressing these gaps. Senior managers are also encouraged to spend at least 90 minutes a day improving their skills in emerging technologies.
These changes come after a year of growing doubts among analysts. The lack of giant deals and client losses to rivals have led at least three brokerages – HSBC, Motilal Oswal Financial Services and Kotak Institutional Equities – to warn of a potential full-year revenue slump, a first for the IT pioneer in more than two decades.
However, recent moves appear to have softened analysts’ sentiment. At least four brokerage houses – ICICI Securities, Kotak Institutional Equities, Deven Choksey Research and Elara Capital – named TCS among their top picks for the third quarter, citing increasing deal momentum and internal restructuring.
Markets are not convinced
Investors remain cautious. In the past six months, TCS has fallen 4.6%, making it the worst-performing stock among India’s top four IT services firms. In comparison, HCL Technologies fell 3.7% while Infosys and Wipro gained 0.6% and 1.2% respectively.
Even in the previous quarter, TCS’s shares lagged behind its peers, highlighting the ongoing uneasiness of investors. At analysis day on Dec. 17, the company sought to reassure shareholders by committing to stable payouts and, for the first time, disclosing growth figures for its cybersecurity, digital marketing and cloud businesses, as well as AI revenue metrics.
Against this backdrop, Mint TCS looks at five reasons behind investors’ caution as it prepares to announce its third-quarter results on Monday.
Geopolitical tensions in Venezuela and Iran may delay the revival in discretionary spending, a key source of revenue for Indian IT outsourcing providers. Analysts also pointed out that the demand recovery for India’s $283 billion IT sector was slower than expected, creating a potential double whammy for TCS.
While the company has not provided official guidance, it has previously stated that international revenues (more than three-quarters of its business) should improve on a year-on-year basis despite reduced demand. Any changes in tone will be monitored closely.
After the completion of the $1.83 billion BSNL 4G deployment in 2025, TCS has struggled to sustain growth. The data center move is unlikely to generate meaningful revenue in the near term; The $700 million Coastal Cloud acquisition, which is expected to be completed by the end of January, may only provide a partial increase.
For now, the main drivers of growth continue to be the $1 billion Telefónica deal and the recovery in foreign demand.
“We delivered 0.8% CC/0.4% USD quarterly revenue growth led by BFSI and communications verticals with increased deals won in the previous quarter,” ICICI Securities analysts Ruchi Mukhija, Aditi Patil and Seema Patil said in a Dec. 24 note.
Fewer business days in a quarter can complicate implementation and make management interpretation critical.
TCS announced on the analysis day that it has generated $1.5 billion in annual revenue from artificial intelligence as of September 2025. Management has stated that the AI business is growing faster than the company. However, the jury is still out on whether automation tools will increasingly be in demand, as the technology is still not widely adopted and is currently eating up bills by automating human tasks.
Julie Sweet, chief executive of Accenture Plc, said last month that enterprise adoption of advanced AI is still in its infancy but expects demand to grow. Analysts also expressed a similar view, adding that artificial intelligence will contribute to growth from the next fiscal.
“Unlike the cloud cycle, which has seen a sharp post-pandemic surge in growth, the AI cycle is expected to be more prolonged and measured. A recovery in growth is expected from FY27E and AI-led services will shape the next long-term growth phase for the Indian IT services sector,” HDFC Securities analysts Amit Chandra, Vinesh Vala and Maitreyee Vaishampayan said in a note dated December 8.
The data center strategy involves heavy capital expenditures on land, equipment and energy, potentially weighing on margins. Severance costs associated with wage increases, furloughs and layoffs could put further pressure on profitability despite the adverse effects of the weakening rupee.
TCS currently leads its peers with an operating margin of 24% and is targeting 26-28%. Whether it can maintain margins despite rising costs will be a key focus.
Over the past year, concerns about implementation and strategic clarity have intensified. The company lost significant accounts to rivals like DXC Technologies, Wipro and LTIMindtree due to delivery issues.
TCS’s rapid strategic shifts, from data centers to AI restructuring, from loss of leadership to mega deals, raise questions about consistency. Hiring plans in an increasingly automated environment will also come under scrutiny when management answers questions on Monday.
