The IT earnings season for the third quarter is off to a strong start, as TCS and HCL Tech estimate highly

ET Intelligence Group: The third quarter earnings season for the IT sector has started on a positive note with each of the top two software exporters, including Tata Consulting Services (TCS) and HCL Technologies (HCL Tech), reporting better-than-expected revenue and profit figures for a historically weak quarter due to festive season. While each of them showed continued business momentum in terms of new orders, the real showstopper was HCL with a nine-quarter high new order booking of $3,005 million. TCS kept its new order booking above $9 billion for the fifth consecutive quarter, with $9.3 billion in deals in the latest quarter. HCLTech has also marginally improved revenue growth expectations for the services segment for FY26 to 4.75-5.25% from the previous 4-5% at constant exchange rates.

An analysis of their performance based on trailing twelve months (TTM) dollar-denominated revenue shows that TCS has experienced a gradual slowdown in year-on-year revenue growth; TTM revenues fell 0.7% in the December quarter, versus 5.4% growth in the comparable quarter two years ago. HCL has been able to maintain its growth rate above 4% for the past nine quarters. The year-on-year variance or incremental TTM revenue for TCS turned negative (down $216 million) for the first time in 20 quarters since the December 2020 quarter when it was negative due to the impact of the Covid pandemic.

For TCS, the slowing TTM trend despite the continued flow of new deals raises concerns as it implies the company is finding it difficult to ramp up deals amid delayed customer decision-making.

At a press conference, HCL management stated that the slowdown in discretionary spending is particularly noticeable in the case of traditional transformation projects, while investments in new technology platforms, including AI enablers such as data centers, semiconductors, generative and physical AI, including robotics and automated cars, are increasing. The company focuses more on these areas.

This explains TCS’s recent announcements to invest in data center-related solutions in a bid to regain revenue momentum. This is more of a long-term project and therefore investors would be keen to see how quickly the company can resume growth on its existing offering.

While TCS has reduced its workforce, HCL has revamped its intake of freshers. In the nine months up to and including December 2025, 10,000 first-year students joined, compared to 6,000 in the period a year ago. In the short and medium term, TCS is likely to come under pressure while HCL is likely to be in line for a revaluation.