Tata Consultancy Services Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Growth returns, led by BFSI and India: Constant-currency revenue grew +0.8% QoQ as most verticals and geographies swung back to positive sequential growth, though discretionary budgets remain tight.
• A \$10 bn order book and a mega deal: TCV rose 16% YoY to \$10 billion, anchored by a Tryg Insurance mega deal and \$3.2 bn from BFSI alone.
• Margin recovery underway, wage headwind ahead: Operating margin hit 25.2%, up 70 bps sequentially ex-severance, but the full-quarter impact of September wage hikes will weigh on Q3.
• A \$6.5 bn bet on sovereign AI infrastructure: TCS announced a new subsidiary to build a 1 GW data center in India, a multi-year capital commitment that will pressure ROE before any revenue arrives.
• What to watch next quarter: Whether the margin journey toward 26% can survive a full quarter of wage costs, the pace of deal conversion after an improved deferral environment, and any signed data center tenant commitments.

Demand Environment

• Broad-based sequential recovery: All verticals except Consumer Business and all geographies except the UK returned to positive QoQ constant-currency growth; India and Emerging Markets showed strong momentum.
• Macro unchanged, execution improved: Management noted no major shift in the demand environment, but the number of project deferrals and pauses declined compared to Q1, a "much improved" situation.
• Discretionary spend still tight: Companies continue to keep tight control over discretionary budgets, and lingering economic uncertainty remains a key challenge.
• Vendor consolidation tailwind: Clients are consolidating vendors to achieve transformation objectives efficiently, and TCS is winning in large deals by infusing AI into its solutions.
• Short-cycle work rising: Rapid-build projects, smaller in tenure and completed within a quarter, are increasing in number, though the overall ratio of short-term to larger projects has not materially changed.

Krithivasan: "Better growth compared to Q1. Macros have not changed much. Deep engagements with clients and AI solutions, rapid builds give confidence to sustain growth momentum compared to H1."

Deal Wins & Order Book

TCV of \$10 billion, up 6.5% QoQ and 16% YoY, with BFSI contributing \$3.2 bn, Consumer Business \$1.8 bn, and North America \$4.3 bn.

• Deal conversion improving: The number of projects getting paused or deferred has reduced compared to last quarter, supporting the outlook for sustained growth momentum.
• AI-powered modernization gaining traction: GenAI and Agentic AI are being used to address tech debt, with significant uptake in BFSI and expectations to replicate across other verticals.

Vertical Performance

• Most segments expected to bend the curve: Subject to Q3 seasonality, management expects most industry segments to move into growth momentum.

AI & GenAI

Strategy and ambition

• Stated vision: TCS aims to become "the world's largest AI-led technology services company," though management declined to define a single metric for this goal, saying it will evolve how it measures year-on-year growth.
• Five investment pillars: Internal AI transformation, redefining all services in a Human+AI model, future-ready talent, making AI real for clients, and an AI ecosystem play including M&A and new business ventures.
• AI and Services Transformation unit established to redefine all services in a Human+AI model; a new TCS AI Office addresses scaled Agentic AI architecture, responsible AI use, and platform and partner innovation.

AI in delivery and productivity

• Software engineering: AI is delivering 10-15% productivity benefits, expected to evolve toward 20-25% as higher autonomy is achieved.
• Application support and infra services: Becoming increasingly AI-led, with initial productivity savings starting to materialize; further benefits expected as autonomy increases.
• Projects previously impossible: AI is enabling projects that could not have been done without it, expanding the overall scope and size of engagements.
• Billing model shift: The delivery model is evolving toward outcome-based projects; TCS is starting to make outcome commitments with select customers, and this is expected to become more mainstream.

Internal adoption

• HR reimagined with an AI-first approach, including a learning co-pilot for every associate and personalized learning pathways.
• 5-scale AI Autonomy model defines the interplay between employees and AI agents and systems.
• Agentic AI solutions being built for business value chains in each industry and across enterprise functions.

Krithivasan: "We'll be offering speed, we'll be offering flexibility and there could be productivity gains also in these projects, but we'll also be doing projects that could not have been done without AI in the past."

Data Center Investment

• The commitment: TCS's board approved creation of a subsidiary to build a sovereign AI data center with capacity of up to 1 GW, phased over five to seven years. Every 150 MW will require approximately \$1 bn in capex, implying a total investment of roughly \$6.5 bn.
• Funding and structure: A combination of equity and debt, with financial partners brought in for equity. The business will be kept separate with its own management and team outside TCS.
• Operating model: On a co-location basis; TCS will provide passive components, while clients bring their own compute and storage.
• Target customers: Pure-play AI providers, deep tech companies, hyperscalers, Indian government needs, and Indian enterprises. All data and compute will be hosted in India.
• Demand rationale: Management cited unmet demand: only 1.2 GW of capacity in India versus demand that could rise 10x in five to six years, against only 5-6 GW of committed capacity. It also guarantees stable annuity revenue.
• No signed commitments yet: Management clarified it has no demand commitments from clients, only conversations; it is positive about prospects but has not confirmed any MoUs or signed agreements.
• Revenue timeline: First revenue expected in 18 to 24 months; metrics will be disclosed at the appropriate time.
• ROE impact: The new business will be capital-intensive with low ROE, but management expects overall TCS ROE to remain market-benchmarked.

Krithivasan: "I did not say demand commitment. I'm saying that there is a lot of unmet demand in the market that led us to getting into this business."

Margins

• Severance charge: ₹1,135 crore provided toward severance in Q2, impacting roughly 1% of the workforce, mainly mid and senior-level employees with skill and capability mismatches.
• Wage headwind ahead: The September 1 wage hike was in effect for only one month in Q2; it will apply for the full quarter in Q3.
• Aspirational band: Management is working toward the 26-28% aspirational margin band and wants to inch closer to 26%, but acknowledges increased investment requirements.
• Severance to continue: Charges will continue throughout the year; TCS is not chasing a particular number and will take charges appropriately in the next two quarters.

Seksaria: "We will continue our journey towards our aspirational band of getting closer to 26%."

People & Workforce

• Workforce restructuring: Approximately 1% of the workforce was released, with the total program estimated at roughly 2%. TCS will continue to evaluate people who cannot be redeployed after investment in learning and development, particularly mid and senior-level employees.
• Severance terms: The package was described as much better than industry standards, approached with empathy and care, and included benefits, counselling, and outplacement support.
• Hiring and localization: TCS continues to hire diverse skills locally across geographies, with large local workforces in the US, UK, and Europe. Only about 500 associates have travelled to the US on H-1B this financial year.
• Net job creator stance: Management stated TCS will continue to be a net job creator.
• New leadership: Sudeep Kunnumal took charge as CHRO; Aarthi Subramanian joined as COO; Mangesh Sathe as CSO; new roles of Chief Digital and Information Officer and Head of AI and Service Integration were created.
• Immigration policy: Management believes the business model can adapt quickly to any changes in immigration policy.

Guidance & Commitments

Key Metrics