“We expect muted growth from TCS in Q2 as positive momentum in BFSI and tech will be largely offset due to weakness in life science & healthcare and communications. We are also building in a 10bps of CC (cross currency) headwind on revenues for the quarter,” HSBC’s Yogesh Aggarwal said.
While the operating margins are likely to be marginally better sequentially, the positive impact of rupee depreciation is expected to be offset by wage hikes to junior employees. However, the benefit from restructuring may accrue gradually in the coming quarter.
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Here are 10 crucial factors analysts will scrutinize in TCS Q2 results:
1) Impact of layoffs
The spotlight falls squarely on TCS’s planned separation of 12,000 employees—roughly 2% of its workforce. Kotak Equities warns that investors will probe the rationale behind this move, its impact on employee morale, and associated costs. While most analysts haven’t baked severance charges into their profit estimates, ICICI Securities expects a one-time hit in the September quarter.
2) US demand and tariff impact
With President Trump’s tariff policies creating uncertainty, the US market outlook becomes critical. Kotak questions “whether impact on demand resulting from imposition of tariff by the US subsided,” while HSBC and Nuvama flag US macro concerns as key monitorables. The developed markets have underperformed, raising questions about potential market share losses.
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3) Revenue growth trajectory
Analysts estimate flattish quarter-on-quarter constant currency growth. Systematix pegs growth at 1.3%, backed by deal ramp-ups but offset by the BSNL deal wind-down. “Ramp-downs in a few accounts and weak demand environment will lead to moderate growth,” Kotak notes.
4) Margin performance under pressure
EBIT margins face a delicate balancing act. While rupee depreciation provides tailwinds, September 1 wage hikes for junior staff—ranging 4.5-7% for 80% of the workforce—create headwinds. Estimates range from Elara’s 20 basis points contraction to Nuvama’s 20 bps expansion. ICICI Securities expects margins at 24.6%, up 10 bps, factoring workforce optimization savings.
5) Mega deal and TCV pipeline
TCS announced a mega deal during the quarter, including the EUR 550 million Tryg contract. Most analysts expect total contract value between $7-10 billion. “Deal activity continues to remain healthy,” says Antique Stock Broking, anticipating TCV around $10 billion despite cautious client spending.
6) BFSI and key verticals outlook
Banking, financial services and insurance remains the crucial vertical to watch. Equirus highlights the need for clarity on “demand outlook in BFSI, retail, communication, hi-tech and other key segments.” HSBC expects positive momentum in BFSI and tech, though offset by weakness in life sciences and communications.
7) AI threat and pricing pressure
The generative AI transition signals a fundamental realignment in delivery models. Kotak flags concerns about “pace of GenAI adoption and deflationary impact on spends,” while Motilal warns that “pricing pressure, client behavior, and the GenAI transition signal a start of realignment as vendors adapt pricing and delivery models.”
8) International markets performance
Geography mix becomes critical as analysts expect varied performance. Systematix notes that “in the last quarter, growth was primarily driven by the UK, Asia Pacific, Continental Europe, and MEA markets, with the US and India markets recording muted growth.” Equirus expects “growth softness in Int’l markets.”
9) H-1B visa dependency
Work visa risks remain on the radar. Kotak specifically asks about “H-1B dependence and plans for further derisking,” while Axis Securities and Equirus list H1B visa impact among key monitorables. The issue gains urgency given the current US administration’s immigration stance.
10) GCC impact and client decision-making
Global capability centers continue disrupting traditional outsourcing. Kotak questions the “impact of GCC ramp-up on growth of companies and GCC as a growth lever.” Meanwhile, deal conversion cycles, client decision-making speed and pricing trends in AI-infused deals will signal whether spending patterns are normalizing.
How to trade TCS shares amid results
Historical patterns suggest potential upside post-earnings, though derivative positioning remains cautious in TCS.
“Over the past decade, TCS has historically delivered an average return of 3.2% in the first week following its Q2 earnings announcement, with this pattern occurring 60% of the time,” says Anand James, Chief Market Strategist at Geojit Financial Services. “Additionally, 70% of the time, the stock has shown a 7% average return over the subsequent one-month period post-results.”
In the last one month TCS shares have remained flat while they are up 4% in the last one week. “In 50% of the instances when TCS experienced negative returns in the one month leading up to its Q2 earnings, there was a 60% probability of a 5% average upside in the month following the announcement,” James notes.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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