The first quarter of FY26 was a challenging period for Indian IT giants, including TCS, Wipro, and HCLTech, with some reporting a drop in revenue and others recording single-digit growth. However, beyond the revenue figures, the focus on AI might be overshadowing the broader story of these firms.
According to a report by Moneycontrol, TCS plans to reduce its workforce by 2% by 2026. This would impact 12,000 jobs primarily at the middle and senior levels. “It has not been an easy decision and one of the toughest decisions I have had to take as CEO,” TCS CEO K Krithivasan said, while adding that AI is not the complete reason for the layoff.
The company also mentioned that it is undergoing a significant overhaul, which includes strategic initiatives in new markets and the deployment of AI at scale for its clients.
TCS attrition ticked up to 13.8% in Q1 FY 26 from 13.3% in the prior quarter.
AI is finally catching up with India’s 30-year-old IT business model, which has been primed for disruption ever since ChatGPT entered the scene.
In the US, the impact has been swift, and several leading tech companies started layoffs late last year. Over 50,000 jobs have vanished this year as giants like Meta, IBM, and Microsoft have reduced their workforces, fueled by AI, cost-cutting measures, and the cancellation of Federal contracts.
The $200 Million AI Question
Besides the layoff, which is relatively small compared to its overall workforce of 6,13,069 employees, the company’s significant drop in ‘cost of equipment and software licences’ expenditure, the narrative around GenAI and AI-led productivity gains suggests AI is in action.
Typically, AI adoption increases software and infra costs due to GPU provisioning, LLM API usage, and onboarding of new development tools and platforms.
But the software license expenses reduced from ₹2,748 crore in the previous quarter to just ₹726 crore now, according to TCS’s latest quarterly financial statement.
Queries sent by AIM to TCS regarding this notable decrease remained unanswered. However, during the earnings call, CFO Samir Seksaria clarified that the drop was due to a completed transformation deal, not AI.
Read: AI Coding Could Be Indian IT Engineers’ Biggest Threat
The company’s COO, Aarthi Subramanian, had earlier said that AI for modernisation is emerging as a strong theme. “GenAI is now becoming the tool to really understand the legacy code and use GenAI to convert and forward engineers to a modernised architecture and application,” she had said.
Subramanian added that productivity gains are visible in coding, but software is much more end-to-end, right from conceptualisation all the way to testing and delivery.
However, the company attributes margin increases to deal closures and policy changes, not automation.
Read: Indian IT ‘Should Be Paranoid’ About AI & Ditch its 30-Year-Old Business Model
Agentic AI is at the Core
Also, TCS did not disclose any major wins related to generative AI this quarter, nor did it specify its GenAI revenues, despite revealing a $1.5 billion GenAI pipeline in Q1 FY25. But the company showcased new platforms, including SovereignSecure and DigiBOLT, both of which are positioned as scalable, AI-native frameworks.
“We have already built agents, and many are in the roadmap,” said Subramanian during the earnings call. “Clients are increasingly shifting their focus from use case-based approach to ROI-led scaling of AI.”
She added that agentic AI is becoming an integral part of all client conversations across various sectors, including BFSI and manufacturing. Subramanian further noted that the shift from experimentation to production has begun, and AI revenues have grown.
Read: Indian IT’s AI Revenue is Still 2–3 Years Away
Meanwhile, addressing the talent acquisition and attrition, Milind Lakkad, the outgoing CHRO, said: “Talent Development is core to TCS. In this quarter, our associates invested 15 million hours in building expertise in emerging technologies, enabling them to lead the transformation journey for our customers.”
He added that over 114,000 employees are now equipped with ‘higher-order AI skills’. The company did not quantify how this would translate to revenue, productivity, or delivery improvements.
TCS also rolled out a more aggressive bench policy, mandating 225 billable days per year, with only 35 days of allowable non-billable time. The company attributed this to automation and client demand for faster, AI-led delivery.
That’s a subtle but telling shift: clients no longer want just headcount. They want outcomes delivered at AI speed.
Krithivasan had said that TCS is “comfortable” with the deal volume in Q1. But comfort doesn’t necessarily translate to confidence. “It could be too early to call out when growth will resume,” he added.
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