TCS shares rally 4% on steady Q1 FY27 show; management sees demand resuming in Q2

Shares of Tata Consultancy Services (TCS) were trading with notable gains in the early trade on Friday, July 10, after the company registered decent financial performance for the quarter ended June 30, 2026 (Q1 FY27).

The stock rallied as much as 4% to hit the high of ₹2,133.30 on the NSE.

Q1 FY27 earnings

India's largest IT services company TCS on Thursday reported a 4.61% year-on-year increase in net profit to ₹13,349 crore for the June quarter (Q1 FY27).

The company also expressed confidence that demand, which was impacted by the West Asia conflict during the quarter, is likely to recover in the ongoing quarter.

The results come at a time when concerns are mounting over the growth outlook for India's $315-billion IT services industry amid the rapid adoption of artificial intelligence. Excluding exceptional items, TCS said its net profit rose 8.5% year-on-year to ₹13,849 crore.

Managing Director and Chief Executive Officer K. Krithivasan said the demand environment remained subdued during the quarter due to geopolitical tensions, with some clients deferring projects. However, the CEO struck a more optimistic tone on the outlook despite the conflicts continuing.

"We are still optimistic that demand will resume sometime in Q2, primarily because our customers have a significant amount of pent-up technology backlog to be completed," Krithivasan said during the post-earnings analyst call.

On the revenue front, TCS posted a 13.8% year-on-year increase in revenue to ₹72,275 crore in Q1 FY27, while revenue grew 2.2% sequentially from ₹70,698 crore in the March quarter. The company also reported an annualised AI revenue run rate of $2.6 billion**, up 13.6% sequentially, reflecting continued momentum in its AI business.

Krithivasan said the quarter reflects continued growth momentum and the strength of our strategic positioning, despite geopolitical and macro-economic headwinds.

"As customers accelerate investments in AI, modernization, cybersecurity, sovereign cloud and platform simplification, our strong deal conversion, improving client mining and expanding ecosystem partnerships position TCS well to translate opportunity into sustained growth," Krithivasan added in a statement.

Key points

The company said it bagged $9.5 billion of total contract value (TCV) or new deals in Q1, which included a $800 million AI-led transformation mega deal with SKF.

Its chief operating officer, Aarthi Subramanian, noted that it signed strategic partnerships with Anthropic and Mistral to expand its AI ecosystem.

With global tech giants creating a lot of interest with their forward deployed engineers programme to assist clients with AI transitions, Subramanian said TCS also had an internal initiative akin to this during the ingress of digital work a few years ago, and added that it is aiming to have 1 per cent of its talent which will undertake FDE-like work going forward.

Operating profit margin

From a financial perspective, it reported an operating profit margin of 24% during the quarter as against 25.3% in the April quarter, which was expected to go down given the wage hikes and also new investments. Chief financial officer Samir Seksaria said it suffered an impact of 1.70% due to the two factors, but currency movements benefitted by 0.40% to limit the hit.

The company, which has a stated aspiration of keeping the operating profit margin in the 26-28% mark, is aiming to exit FY27 at over 25% level, Seksaria added.

Headcount and attrition

The headcount rose by over 9,200 staffers in the three months to June to 5,93,798 employees as of June 30, it said, adding that the long-term attrition in the IT services came at 13.6 per cent.

"We continue to invest in AI infrastructure, next-generation skill development platforms, to enable our people to be future ready, while fostering a workplace where every associate feels safe, valued, trusted and empowered to grow," its chief human resources officer, Sudeep Kunnumal, said.

Kunnumal added that the company has given offers to over 14,000 freshers in Q1 and continues to be on campuses looking for AI-native talent.

What analysts said after Q1 FY27 earnings

Analysts offered a mixed assessment of TCS' June-quarter earnings, acknowledging the company's resilient execution and robust deal wins while remaining cautious about the pace of a demand recovery.

Morgan Stanley said the Q1 FY27 performance was in line with or slightly ahead of expectations. It also noted that management's commentary on the September quarter was incrementally positive, supported by a $9.5 billion total contract value (TCV) and an annualised AI revenue run rate of $2.6 billion.

Goldman Sachs said revenue growth broadly met expectations, but margins were weaker than anticipated due to wage hikes.

While management expects demand to improve from the September quarter, Goldman Sachs said there is limited evidence so far to support a meaningful recovery and expects HCLTech's and Infosys' guidance to provide further direction for the sector.

CITI, however, noted that the company's Q1 FY27 performance was largely in line with expectations but remained sluggish.

The investment firm highlighted flat international revenue growth on a sequential basis, while trailing 12-month total contract value (TCV) grew just 1% year-on-year.

CITI also pointed to continued weakness in discretionary spending, noting that management's expectation of a Q2 recovery driven by pent-up technology demand echoes similar commentary made in April 2024.

It further flagged slowing AI revenue additions, weakness across three of the company's five major verticals, and headwinds from global capability centres (GCCs) as key concerns, prompting it to reduce its valuation multiple to 12x from 13x.