TCS Navigates Macro Headwinds with Strategic AI Push in Q2 FY26

Tata Consultancy Services (TCS) reported a resilient performance for the second quarter of fiscal year 2026, demonstrating strategic agility amidst persistent macroeconomic uncertainties. The IT services giant posted a consolidated INR revenue of ₹65,799 crore, marking a 3.7% sequential growth and a 2.4% year-on-year increase. In constant currency terms, the revenue grew by 0.8% quarter-on-quarter. The company maintained strong profitability, with an operating margin of 25.2% and a net margin of 19.6%, excluding a one-off restructuring expense. Cash flow from operations remained robust at 110.1% of net profit, underscoring its financial discipline.

Growth momentum was broad-based across most verticals and geographies, with India and emerging markets showing particularly strong performance. All verticals, except Consumer Business, and all geographies, except the United Kingdom, returned to positive sequential growth. The company's Total Contract Value (TCV) was robust at $10 billion, a 16% year-on-year increase, highlighted by a significant mega deal win with Tryg Insurance. This robust deal pipeline, comprising a healthy mix of cost optimization, transformation, services, and platform deals, signals continued demand for TCS's offerings.

Financial Highlights: Q2 FY26

The AI-First Transformation

The central theme of TCS's strategy is its ambitious journey to become the world's largest AI-led technology services company. This transformation is anchored in five strategic pillars: internal AI transformation (tcsai) to foster an AI-first culture, redefining all services with a Human + AI model, building a future-ready talent model, making AI real for clients by redesigning business value chains, and deepening its AI ecosystem partnerships. The company is investing significantly in these areas, including the inauguration of new innovation centers in Singapore and Mexico City, and expanding software-defined vehicle capabilities in Europe.

A key strategic move is the Board's approval for a new subsidiary focused on building a Sovereign AI datacenter in India, targeting a capacity of up to 1 Giga Watt over five to seven years. This capital-intensive project, estimated at $1 billion per 150-megawatt phase, will be funded through a mix of equity and debt, with external finance partners. This initiative aims to address the substantial unmet demand for data center capacity in India, providing a new stream of annuity revenues and strengthening relationships with hyperscalers and Indian enterprises. While acknowledging the lower Return on Equity (ROE) for this new venture, management believes it will not dilute the overall company ROE, which currently stands above 50%.

Talent and Operational Agility

In terms of human resources, TCS announced a wage hike for over 80% of its workforce and reported a global headcount of 593,314 at the close of Q2 FY26. The company transparently addressed workforce restructuring, releasing 1% of its mid and senior-level employees due to skill and capability mismatches, incurring a one-off severance expense of ₹1,135 crore. This highlights the continuous need for talent reskilling in the rapidly evolving tech landscape, particularly with the advent of GenAI. Despite these adjustments, TCS reiterated its commitment to being a net job creator and continues to invest heavily in talent development, with 33.4 million learning hours and 2.6 million competencies acquired year-to-date.

Outlook and Strategic Clarity

Looking ahead, TCS maintains a positive outlook, reiterating its guidance for FY26 International Revenue growth to be better than the previous fiscal year. The company also aims to return to its aspirational operating margin band of 26-28%. The management's commentary reflects a balanced perspective, acknowledging lingering economic uncertainties while confidently pursuing strategic investments in AI and infrastructure. This quarter underscores TCS's strategic clarity and disciplined execution, positioning it for sustainable long-term growth and continued leadership in the evolving technology services landscape.