TCS shares jump 6%: Q2 results boost sentiment; US PERM suspension unlikely to have an impact

IT bellwether Tata Consultancy Services (TCS) was buzzing in the early trade on Friday, October 9, following the company's Q2 results, which were broadly in line with or exceeded expectations on key parameters, and the US government's decision to suspend the Permanent Labor Certification Program (PERM).

The development has raised questions about its potential implications for Indian IT companies, although TCS has said it does not expect the suspension to affect its workforce strategy or customer engagements.

The stock rallied as much as 6.11% to hit a high of ₹2,202.9 on the NSE.

In its statement on October 9 morning, TCS said, “We have noted the announcement by the US Government on the Permanent Labor Certification Program (PERM), and TCS will comply with any directive from the Department of Labor. Our workforce strategy in the US is anchored in hiring local talent, supported by a robust campus recruitment model. We have built a significant local workforce across 31 offices and delivery centres throughout the country."

"As we had announced earlier, we intend to hire an additional 15,000 people in the US over the next five years to further augment our local workforce. Our PERM applications were in single digits in the last two years, and hence we do not expect the suspension of the program to impact our workforce strategy and customer engagements," TCS added.

TCS Q2 FY27 earnings

The country's largest IT services company posted a net profit of ₹12,075 crore in the year-ago period and ₹13,349 crore in the preceding September quarter.

The company said its revenue from operations rose 11.22% to ₹73,188 crore in the July-September period from ₹65,799 crore in the year-ago period. In the June quarter, its topline stood at ₹72,275 crore.

About 10% of overall revenue came from the artificial intelligence (AI) front, where the company upped annualised revenue to $3.1 billion from $2.6 billion in the quarter-ago period, Chief Executive K Krithivasan said in an analyst call.

For the reporting quarter, growth has been broad-based, Krithivasan said, adding that looking at the pipeline, deal signings and client conversations, he is confident of the growth momentum to continue.

Other key points

Its chief operating officer, Aarthi Subramanian, said AI revenues are growing at the fastest pace in the banking, financial services and insurance, manufacturing and life sciences verticals.

From a new deal signing perspective, it reported a total contract value of $9.6 billion for the July-September period, marginally up from the $9.5 billion a quarter ago.

TCS chief financial officer Samir Seksaria said the profit margins on the AI deals are higher than the company's average. It reported the overall operating margin at 24 per cent, the same level as in the quarter-ago period.

Seksaria made it clear that even as the company continues to aspire to take the number to beyond 26% over the long term, it will continue investing for the future.

Refraining from giving a profit margin target in the near term, he also pointed to challenges in the second half of FY27 on hits coming through acquisitions.

What analysts said on TCS post-Q2 earnings

Analysts had mixed views on TCS after its Q2 results, with concerns over sluggish revenue growth, muted deal wins and continued margin pressures outweighing some positives, including accelerating AI revenue and growth across key international markets.

While Goldman Sachs, Nomura and JPMorgan remained positive on TCS, Citi and Jefferies maintained a bearish view. HSBC, CLSA and Morgan Stanley remained cautious, while Kotak Institutional Equities retained a constructive stance.

Most analysts flagged limited visibility on a sustained growth recovery and expected investments in growth, strategic partnerships and M&A to weigh on margins in FY27. Several also trimmed their earnings estimates.

TCS’ AI revenue crossing $3 billion, sequential headcount growth and healthy performance in select verticals were key positives, but the timing of a broader revenue recovery and a return to the aspirational 26–28% EBIT margin range remained key concerns.

Goldman Sachs

TCS’ revenue growth was in line with Goldman Sachs’ estimates, though margins came in below expectations.

Positives included sequential growth across most regions, except India, with growth broad-based across verticals. Headcount increased for the third consecutive quarter, which management attributed to demand fulfilment and which also suggests lower-than-expected headwinds from AI.

However, EBIT margins remained flat quarter-on-quarter despite revenue growth in international markets and no wage-hike headwind. This suggests continued pressure from reinvestments, deflation, and competition. Deal wins growth was negative, indicating that the revenue growth environment may remain tepid.

CITI

TCS reported an in-line but sluggish quarter, with revenue growing 2.8% year-on-year in constant currency (CC), against a 3.3% decline in the year-ago quarter.

EBIT margins declined 120 basis points year-on-year despite 9% rupee depreciation, making the company’s aspirational margin range of 26–28% increasingly difficult to achieve.

Forward-looking indicators remain weak. Trailing 12-month total contract value (TCV) declined 3.3% year-on-year, compared with 9.4% growth in Q2FY26, while headcount increased 1% year-on-year. Management identified AI as a key growth driver and indicated that FY27 margins could be lower than previously discussed.

CITI has lowered its FY27–FY29 earnings estimates by around 1–2%, also incorporating Porsche IT, and expects muted, low-single-digit revenue growth to continue. It expects growth challenges to keep weighing on stock and sector valuations.

HSBC

While the overall Q2 performance was slightly below expectations, there were a few positive underlying trends. Key verticals such as banking and technology recorded growth, while the US consumer and energy verticals remained laggards.

HSBC believes valuations remain undemanding, although it has lowered its margin estimates slightly.