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India’s Tata Consultancy Services Ltd. reported earnings that missed analysts’ estimates, signaling overseas clients are still cautious in betting big on information technology projects.
Net income rose 12% to 123.8 billion rupees ($1.4 billion) in the three months through December, Mumbai-based TCS said Thursday in a statement. Analysts expected 125.3 billion rupees on average, in a traditionally weak quarter for outsourcers. Sales climbed 5.6% to 639.7 billion rupees.
TCS leads India’s $250 billion software services sector that helps global clients such as Apple Inc. and Bank of America Corp. with business continuity as well as offerings in cloud computing, automation and artificial intelligence. The industry has been going through a stagnation because of high interest rates and military conflicts around the world.
The company expects this year to be better than the last as customers are more confident about IT spends than in previous quarters and deal cycles are shortening, Chief Executive Officer K. Krithivasan told a news conference in Mumbai. These factors make him believe that clients will be more focused on higher-margin software services going forward, he said.
The new year brings in fresh challenges for corporations including TCS as Donald Trump takes office as the new US president, potentially fanning the debate around H-1B work visas used by Indian IT firms to send engineers and developers to its biggest market. The US Federal Reserve, which cut rates last month, expects elevated inflation and fewer rate cuts in 2025, factors that could weigh on client sentiment.
TCS is not expecting “any major disturbance” to its business due to potential changes in H1B rules in the US as the company’s reliance on that visa is very low, Krithivasan said.
To be sure, a low-cost delivery model and a shortage of skilled IT talent in developed economies is still expected to work in favor of Indian tech firms. For TCS, its large market share has also helped it maintain healthy operating margins.
What Bloomberg Intelligence Says
An improvement in the visibility of corporate tech budgets and economic conditions could fuel a rebound in demand for IT services around 2H, which could push more work offshore as companies seek the most value for the money spent.