India’s largest IT services exporter, Tata Consultancy Services (TCS), is preparing to extend its workforce restructuring into the next quarter, even as it sharpens its focus on artificial intelligence-led growth and cost optimisation. While the company insists there is no fixed target for employee exits, the message from top executives is clear: the reset is ongoing.
Credits: Moneycontrol
No Fixed Target, But Restructuring Continues
Speaking at a post-Q3 earnings analyst meet on January 12, TCS Chief Human Resources Officer Sudeep Kunnumal said the company will continue with employee terminations in the upcoming quarter, but without chasing specific numbers.
“Released 1,800 employees with due care and compliance in this quarter. Expect to continue into the next quarter as well, but we are not going after a number. It is purely a process and we only release employees if there is a genuine reason,” Kunnumal told analysts.
The exits are part of a broader restructuring exercise announced in August, under which TCS had earlier indicated it would let go of around 12,000 employees during the current fiscal year.
Headcount Shrinks for Second Straight Quarter
The December quarter marked another significant reduction in TCS’s workforce. After trimming nearly 20,000 employees in the September quarter, the IT major reduced headcount by a further 11,150 employees in the three months ended December 2025.
This brought TCS’s total employee strength down to 5,82,163, extending a sequential decline that signals a deeper organisational realignment. Management has previously clarified that not all reductions are involuntary, pointing to a mix of restructuring-led exits, attrition, and operational rationalisation.
In the September quarter, TCS had reported a net reduction of 19,755 employees, while suggesting that only around 6,000 of these were involuntary exits linked directly to the restructuring programme.
Labour Codes Weigh on Profits and Margins
Financially, the December quarter was challenging. TCS reported a 13.91% year-on-year decline in net profit to Rs 10,657 crore, largely due to a one-time impact from India’s new labour codes.
Chief Financial Officer Samir Seksaria said the company set aside over Rs 2,100 crore during the quarter towards labour code provisions. This included Rs 1,800 crore for gratuity and Rs 300 crore for leave encashments.
Seksaria added that changes in labour codes will continue to have a 0.10–0.15% impact on margins in the coming quarters, making it a structural headwind rather than a one-off concern.
Productivity Gains Offer Some Relief
Despite the pressure from statutory costs, margins found some support from productivity improvements and favourable currency movements. However, these positives were partially offset by the impact of wage hikes and increased brand-building investments.
Notably, restructuring expenses declined sharply in the December quarter. These costs fell by over 77% sequentially to Rs 253 crore, indicating that the most intense phase of one-time restructuring charges may be behind the company.
AI Emerges as a Growth Engine
While traditional IT spending remains cautious, artificial intelligence is emerging as a bright spot for TCS. The company said AI-led services are now generating an annual revenue run rate of $1.8 billion, accounting for around 5.8% of its total revenue.
This AI-driven momentum helped boost growth in what is typically a seasonally weak quarter for the IT industry, reinforcing TCS’s strategic pivot toward next-generation technologies.
Confident Outlook for Calendar Year 2026
Despite near-term headwinds, TCS leadership struck an optimistic tone on future growth. Chief Executive Officer K Krithivasan said strong client conversations, robust deal momentum, and growing leadership in AI underpin confidence for the year ahead.
“Based on the client conversations, strong deal momentum and the leadership we are gaining in AI, we are confident of a good calendar year 2026,” Krithivasan said during the post-earnings analyst call.
Credits: People Matters
A Broader Reset Underway
The combination of sustained headcount reductions, labour code-linked charges, and falling restructuring expenses suggests TCS is moving from disruption toward stabilisation. As demand patterns shift and AI reshapes delivery models, the company appears focused on recalibrating its workforce while positioning itself for long-term growth.
For India’s largest private-sector employer, the coming quarters will test how effectively it can balance people, profitability, and transformation in a rapidly evolving tech landscape.
