TCS Q2 Results Preview: Can the IT bellwether show enough growth to calm investors?

Tata Consultancy Services (TCS) is expected to open the September-quarter earnings season on a cautious note, with analysts seeing modest sequential revenue growth but better year-on-year numbers helped by a low base and margin support. The IT major will announce its Q2 results on October 8, with the board also expected to consider a second interim dividend.

According to the average of seven brokerages, TCS revenue is expected to grow about 13% year-on-year, while profit is likely to rise around 9%. On a sequential basis, however, growth is expected to remain soft, with most brokerages pencilling in constant-currency revenue growth of 0.5-0.6%.

The muted sequential growth reflects the broader weakness in Indian IT services. Client spending remains cautious, discretionary projects are still slow, and investors are watching whether artificial intelligence will add new revenue streams or reduce billing in traditional services.

BFSI may support, consumer may drag

Motilal Oswal expects TCS to report 0.5% quarter-on-quarter constant-currency revenue growth. The brokerage said steady execution in BFSI and technology and services could be offset by softness in the consumer vertical.

Jefferies has a similar estimate, expecting 0.6% constant-currency revenue growth, helped by the UK, Europe and India regions. JM Financial expects 0.5% constant-currency growth, but a 20-basis-point cross-currency headwind could pull dollar revenue growth down to about 0.3%.

Kotak Institutional Equities also expects modest 0.5% revenue growth, driven by the international business. The brokerage has not factored in any revenue contribution from the new BSNL contract for the quarter.

Margin recovery in focus

Margins may show some improvement as the impact of annual wage hikes fades. Motilal Oswal expects EBIT margin to expand by about 100 basis points sequentially to around 25%, largely due to reversal of the wage-hike impact.

Emkay Global expects EBIT margin to expand by 50 basis points quarter-on-quarter, supported by operating efficiencies. JM Financial expects only marginal improvement, as wage-hike benefits may be partly offset by business investments.

Kotak is more cautious. It expects margins to be stable sequentially but down 100 basis points year-on-year, reflecting wage revisions, pricing pressure and acquisition-related impact.

Analysts expect the company to keep reinvesting part of its operating gains rather than allowing the full benefit to flow through to margins.

Deals, AI and BSNL are the key watchpoints

Deal wins will be closely tracked. Kotak expects total contract value of $10-11 billion, helped by the Porsche mega-deal. Jefferies expects deal wins in the $9-10 billion range, while JM Financial expects $8-10 billion.

Motilal Oswal said annualised AI services revenue should maintain strong momentum after rising 13.6% quarter-on-quarter in Q1, supported by demand for AI-led modernisation, autonomous GBS, cybersecurity and sovereign cloud.

Investors will also watch for more details on the Porsche partnership, the second phase of the BSNL deal and the timing of any revenue contribution from that contract. Kotak expects no BSNL contribution in Q2, while JM Financial expects the ramp-up in Q3.

TCS shares and the wider IT pack have been under pressure this year as growth expectations stayed weak. The Nifty IT index has significantly lagged the Nifty in 2026, hit by weak demand and worries over AI-led revenue deflation.

Investors will look for signs of recovery in BFSI, retail, hi-tech, manufacturing and communications. Any indication that discretionary spending is picking up in the second half could help sentiment in a sector that has lagged the broader market sharply.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.