TCS Layoffs and Cost-Cutting Measures Could Hurt Long-Term Growth - Warns Jefferies

New Delhi, July 29 — Tata Consultancy Services’ (TCS) recent decision to let go of approximately 12,200 employees—around 2% of its global workforce, primarily at managerial and senior levels—has raised significant concern about long-term strategic impact.

TCS maintains that the cuts are part of an ongoing transformation to become a “future-ready” organisation by aligning with AI-led productivity trends, closing skill gaps, and redeploying talent where possible. The layoffs follow earlier margin-preserving moves, including postponing wage hikes and implementing a stricter bench policy limiting non-billable days to 35 per year.

However, a report from Jefferies has cautioned that this aggressive cost-cutting approach could undermine employee morale in the near term and elevate attrition risks over the longer run—mirroring challenges faced by Cognizant during 2020–22. Specifically, the brokerage warned that reduced staffing at mid and senior levels may lead to execution slippages and disrupt client engagements

Margin Focus Intensifies

The report highlighted that this layoff is the third major cost-saving measure announced by TCS in just three months, pointing to mounting pressures on margins amid a weak demand environment. In April 2025, TCS deferred annual wage hikes. In June, it introduced revised benching guidelines that now cap the non-billable period for employees at 35 days per year.

The impact extends beyond TCS alone—shares of other major Indian IT firms like Infosys, Wipro, and HCL also experienced declines following the announcement, reflecting broader investor anxiety around sector stability, margin pressures, and AI-disruptive shifts in service delivery models

Jefferies noted, “Focus on cost-cutting may hurt TCS in the longer run,” as the company’s aggressive push to conserve profitability could strain its core strength — employee retention and long-term career stability.

Workforce Stability at Risk

TCS, which has historically maintained a lower-than-average attrition rate despite not being among the industry’s highest paymasters, has built its reputation on offering career security and long-term growth opportunities. The report warned that recent cost-centric policies could disrupt this balance, potentially weakening employee morale and execution capabilities.

Despite assurances from TCS leadership that service delivery will remain unaffected, the firm’s CEO K. Krithivasan and analysts have acknowledged a slowdown in deal momentum and revenue growth. TCS reported modest Q1 FY26 sales growth of just 1.3% YoY, declining order book inflows, and a cautious outlook for double-digit growth in FY26—further fueling investor scepticism.

Broader Industry Trends Add Pressure

While the layoffs appear specific to TCS, Jefferies flagged that overall net hiring in the IT industry has remained subdued since FY22 due to continued moderation in client demand. The pressure to deliver cost efficiencies has intensified, especially with the rising adoption of Artificial Intelligence (AI), allowing companies to achieve more with fewer employees. However, this automation-driven efficiency often leads to layoffs, particularly as bench redeployment slows during low-demand cycles.

Companies with weak growth outlooks are already operating at high utilisation rates and maintaining thin benches, while stronger firms continue to operate with lower utilisation, giving them greater workforce flexibility.

Stock Performance: TCS Hits 52-Week Low

As of July 29, 2025, at 12:44 PM IST, Tata Consultancy Services (TCS) shares were trading at ₹3,045.40, down ₹33.90 or 1.10% for the day. The stock opened at ₹3,060.00 and hit an intraday high of ₹3,074.00, while the low touched ₹3,041.20—also its new 52-week low. With a market capitalisation of ₹11.02 lakh crore, TCS currently trades at a P/E ratio of 22.36 and offers a dividend yield of 2.00%. The most recent quarterly dividend payout stood at ₹15.23 per share.

The slide in stock price underscores the market’s cautious stance on TCS’s evolving cost strategy and its implications for future growth and stability.

About Tata Consultancy Services (TCS)

Tata Consultancy Services (TCS) is a leading global IT services, consulting, and business solutions company headquartered in Mumbai, India. A part of the Tata Group, TCS operates in over 50 countries and serves clients across key sectors including banking, retail, telecom, and healthcare. With a strong focus on innovation, digital transformation, and sustainability, TCS has built a reputation for delivering quality software and consulting solutions.

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