Why TCS Stocks are Plummeting

In Q4 2022, TCS reported revenue growth of 14.3%, while in Q4 2023, the IT giant just touched 10.7% in Q4 2023
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Yesterday, Tata Consultancy Services (TCS) announced its Q4 results, which didn’t make the cut on the market expectations. The TCS Q4 results disappointed in many ways, for instance, while the operating margins remained the same as the previous one (i.e, 24.5%), the revenue growth in constant currency went down by 3.6%. 

In Q4 2022, TCS reported revenue growth of 14.3%, while in Q4 2023, the IT giant just touched 10.7% in Q4 2023. TCS believes that it was due to the company’s clients in the North American banking space deferring project spending amid the US financial crisis.

The company has expressed concern over the future of its banking, financial services, and insurance segment in the North American market, citing the urgent need of clients to conserve cash. CEO Rajesh Gopinathan acknowledged that the current quarter’s performance was weaker than expected, and pointed to the financial instability of the North American banking system as the primary cause. He also expressed uncertainty about the duration of this trend.

SVB collapse, TCS stocks nosedive 

TCS says that events in the USA, like the fall of Silicon Valley Bank and fears of contagion, have impacted client sentiment in North America and the banking, financial services and insurance sector in particular, leading to clients deferring spending. It is to be noted, that SVB collapse indeed caused the fear of contagion effect in the North American markets. The contagion effect in the finance sector refers to the spread of financial distress or crisis from one market or institution to others, often leading to a domino effect of economic problems. 

However, SVB Bank is a relatively small bank compared to some of the larger banks in North America, and its customer base is more niche, so the possibility of a contagion effect is relatively less. Still, the chief operating officer, N Ganapathy Subramaniam, believes that clients have adopted a strategy of “spending wisely” due to the impact on the sentiment, and are deferring spending.

However, it is to be noted that while the company blames North America’s growing uncertainty as a factor for relatively poor performance this year, the news of TCS chief Gopinathan stepping down also makes it clear that the company was facing problems with its leadership. 

According to reports, while TCS CEO Gopinathan was preoccupied with financial matters, Accenture and Infosys had already outperformed TCS in winning major contracts. Over the past three years, Accenture — which boasts a revenue base more than twice the size of TCS — has exhibited faster growth than the latter. Similarly, Infosys has experienced higher revenue growth than TCS for three consecutive fiscal years. However, it is worth noting that TCS has a larger revenue base than Infosys.

Focus on AI

While TCS might not be on the best performance when it comes to Q4 results, the tech giant is focusing on the importance of AI and it’s implementation in organisation. “In my interactions with clients over the last quarter, the conversation starts and stops with ‘ChatGPT’,” said Subramaniam. He further said that the company will focus on generative AI. Over the past 3-4 decades, “we have collected enormous data that we can cut, slice, dice and use how we want to”, he added. “We are using ML to see how we can raise the bar.”

In an earlier interaction with Analytics India Magazine, Abhijit Mazumder, chief information officer of TCS had said that the company is actively focusing on AI for some of the processes. “We have applications that utilise useful historic data and patterns with advanced AI algorithms like deep neural networks for various business functions, thereby providing real-time insights through predictive dashboards, as well as recommendation engines for taking informed business decisions and mitigating risks.”

According to Subramaniam, there is still significant demand for cloud and data expertise both within the organisation and in the solutions provided to clients. To capitalise on the wealth of data and metrics accumulated over many years, the company is adopting a comprehensive approach to AI/ML in their execution methods. This strategy aims to extract insights and enhance the quality and experience delivered to clients.

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Lokesh Choudhary
Tech-savvy storyteller with a knack for uncovering AI's hidden gems and dodging its potential pitfalls. 'Navigating the world of tech', one story at a time. You can reach me at:

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