---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 182377
conversation_id: d8fa42d5-885b-4044-ac7e-d73689e01f8c
citations: 9
created: 2026-05-31 21:02:53Z
---

# What are the key risks to Tata Consultancy’s growth trajectory?

# Key Risks to Tata Consultancy Services' (TCS) Growth Trajectory

Based on CLSA's June 2025 sell-side coverage of TCS and the broader Indian IT sector, the principal risks to TCS's growth path are concentrated around weak discretionary demand, vertical-specific cyclical pressure, tariff-driven uncertainty, and emerging Gen AI / pricing dynamics.

## 1. Weak Discretionary Demand & Macro Uncertainty (Top-Line Risk)

CLSA's 1QFY26 commentary preview for TCS explicitly flags that **"Broad demand commentary in 1QFY26 remains similar to 4QFY25 in terms of weak discretionary demand"** and the **"Theme of vendor consolidation / cost optimization has intensified due to weak macro"** [1]. The overarching sector framing is that "broader discretionary spending remains muted amid an uncertain macro," with overall discretionary spending not improving materially across Indian IT companies [2].

This has direct revenue-growth consequences: CLSA's BFSI revenue model for TCS shows **0.0% YoY USD growth in FY25 (revenue of $9,310m vs $9,312m in FY24, after just 1.3% in FY24)** — reflecting how thin growth has become in TCS's largest, most resilient vertical [6]. Recovery to mid/high-single-digit growth (FY26CL: +5.6%; FY27CL: +11.2%) is dependent on a "V-shaped" rebound that is not yet confirmed in deal-flow data.

## 2. Tariff-Driven Vertical Disruption

Tariff-related uncertainty has had asymmetric, negative impact on key TCS verticals:

| Vertical | Tariff-Driven Impact (CLSA commentary on TCS, 1QFY26) |
|---|---|
| **Retail** | "Retail has been the highest impacted which includes consumer, TTH and retail chains" [1] |
| **Manufacturing/Autos** | "Autos manufacturing saw negative impact due to tariff uncertainty" [1] |
| **BFSI – Healthcare insurance** | "HC clients in US were cautious due to policy uncertainty. Even LS/HC also got impacted due to Medicare/medicaid funding uncertainty" [1] |
| **BFSI – Insurance** | "LA fires in the December quarter as well as sporadically in the last quarter has had an impact in Insurance vertical" [1] |
| **EU BFSI** | "EU BFSI clients are cautious" [1] |
| **CME (Comms, Media, Entertainment)** | "CME remains muted" [1] |

CLSA also notes that retail and auto specifically "have seen the highest impact on overall and discretionary demand" due to tariffs across Indian IT [3].

## 3. BFSI Concentration Risk & Soft Near-Term Order Flow

BFSI is TCS's largest and most resilient vertical, but it carries concentration risk if recovery falters. CLSA notes that **"BFSI continues to grow sequentially despite tariff related uncertainty"** [5], but the analyst is also explicitly **"building certain softness in 1QFY26CL for BFSI vertical due to tariff related uncertainty"** before a hoped-for V-shaped recovery [7].

The BFSI TCV deal-win trend shows lumpiness: TCS BFSI TCV stepped from $4.0bn in 4Q25 (only +2% YoY) versus prior quarters of 32% and 23% YoY growth — signaling deceleration in the deal-win momentum that has been the leading indicator for revenue [7]. Large-US-bank tech-spending commentary itself remains **"largely uncertain due to ongoing tariff-related issues and related policy uncertainties"** [4].

## 4. Deal-Pursuit Discipline / Lost Mega-Deals

CLSA highlights two specific recent deals TCS chose NOT to pursue:
- **Phoenix deal**: "TCS did not pursue the Phoenix deal as Phoenix wanted to deliver from their legacy platform 'Alpha' while TCS did not want to do an on-site heavy project" [1]
- **LTIM deal**: "the deal was aggressively bid making no economic sense to TCS, and hence they did not pursue the same" [1]

This is a double-edged risk: defending margins via deal discipline is positive, but it caps TCV growth at a time when peers compete more aggressively on price.

## 5. BSNL Deal Ramp Peaked Out (Regional Markets Headwind)

TCS's flagship BSNL deal — material to its "Regional markets and others" segment which captures its India business [9] — has now passed peak ramp: **"Ramp-up had peaked out in previous quarter. 80,000 new towers are fully functional now with 10,000 more towers in the pipeline"** [1]. This removes the tailwind that supported domestic revenue in prior quarters and will weigh on YoY comparisons.

## 6. Margin Compression Risk

Despite cost discipline, CLSA flags that **"Margins can be constrained in the near term"** for TCS [1]. The pressure is structural — driven by Gen AI / automation-led pricing pressure observed across peers [2] — and exacerbated by the cost-optimization theme intensifying further, where clients demand price concessions on renewals.

## 7. Gen AI – Asymmetric Revenue Risk

CLSA's June 2025 Gen AI access-day work identifies several risks that bear directly on TCS:
- **Low initial RoIs of Gen AI projects** mean clients are slow to scale beyond pilots
- **Real-time productivity is far lower than committed** — vendor credibility risk if outcomes underwhelm
- **Gen AI is creating a level playing field across small, mid and large-sized players** — eroding the scale advantage TCS has historically leveraged
- **Pure Gen AI deals are still quite few and largely at pilot stages**, so the revenue contribution remains thin

This combination — productivity-led pricing pressure on existing work, but limited new revenue capture from Gen AI yet — is structurally adverse for incumbents like TCS.

## 8. Geographic & Sector-Wide Spillover

Accenture's 3QFY25 read-across confirms the demand backdrop is **"a tough quarter with a high level of tariff-related uncertainty"** even as ACN raised FY25 guidance [8]. The broader macro mix — uncertain US recession probabilities (50/50 from JPMorgan), expected GDP slowdown to 1–2% in 2025 (BofA), inflation/rate volatility — provides little reprieve for clients to release frozen discretionary budgets.

## Summary Risk Matrix

| Risk Category | Likelihood (per CLSA, Jun 2025) | Growth-Trajectory Severity |
|---|---|---|
| Weak discretionary demand persisting | High — already 4QFY25 and 1QFY26 muted | High — directly limits topline growth |
| Tariff-driven retail/auto/HC slowdown | Confirmed in 1QFY26 | Medium — focused on cyclical verticals |
| BFSI 1QFY26 softness before V-shaped recovery | High (analyst building this in) | High (largest vertical, $9.3bn revenue base) |
| Pricing pressure from Gen AI / automation | High; ongoing | Medium — manageable if not accelerating |
| BSNL ramp peaked | Confirmed | Medium — removes prior tailwind |
| Margin constraint in near term | Confirmed by CLSA | Medium |
| Lost mega-deals (Phoenix, LTIM) due to discipline | Confirmed | Low–Medium — protects margins but caps TCV |
| Healthcare insurance / Medicare-Medicaid policy risk | Active | Medium |

## Bottom Line
CLSA's coverage frames TCS's growth trajectory as held back primarily by **(a) macro/tariff-driven discretionary weakness in retail, auto, and US healthcare**; **(b) BFSI concentration that is resilient but not yet accelerating**; **(c) BSNL ramp tailwind fading**; **(d) Gen AI-related pricing pressure with limited offsetting Gen AI revenue**; and **(e) intensified vendor-consolidation pressure that demands either price concessions or walking from deals**. The base case is a "V-shaped recovery" beginning 2QFY26 [7], but every risk above is a vector through which that recovery could slip.

Note: The Manticore public-corpus search for ticker "TCS" returns The Container Store (US), not Tata Consultancy Services. No public earnings-call transcript chunks for the Indian TCS were retrieved in this session, so the synthesis above is sourced entirely from CLSA internal research (which carries detailed channel-checks and 1QFY26 management commentary on TCS).

---
**Sources**
[1] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — Figure 3 (TCS-specific commentary table) — 607962319LinqAlpha.PDF
[2] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — 607962319LinqAlpha.PDF
[3] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — 607962319LinqAlpha.PDF
[4] India IT Sector Update (No change to tale of two cities) — CLSA (16 May 2025) — 607959674LinqAlpha.PDF
[5] India IT Sector Update (No change to tale of two cities) — CLSA (16 May 2025) — BFSI 4Q25 vertical commentary table — 607959674LinqAlpha.PDF
[6] India IT Sector Update (No change to tale of two cities) — CLSA (16 May 2025) — BFSI vertical revenue growth table FY19–FY28CL — 607959674LinqAlpha.PDF
[7] India IT Sector Update (No change to tale of two cities) — CLSA (16 May 2025) — BFSI revenue growth & V-shaped recovery commentary — 607959674LinqAlpha.PDF
[8] India IT (Accenture 3Q25 read-across) — CLSA (20 Jun 2025) — 607962486LinqAlpha.PDF
[9] India IT Sector Update (No change to tale of two cities) — CLSA (16 May 2025) — TCS BSNL/regional markets commentary — 607959674LinqAlpha.PDF

## Citations

- [1] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [2] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [3] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [4] **607959674LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959674LinqAlpha.PDF>
- [5] **607959674LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959674LinqAlpha.PDF>
- [6] **607959674LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959674LinqAlpha.PDF>
- [7] **607959674LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959674LinqAlpha.PDF>
- [8] **607962486LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962486LinqAlpha.PDF>
- [9] **607959674LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959674LinqAlpha.PDF>

