TCS Anticipates Retail and Manufacturing Growth After Banking Recovery

Tata Consultancy Services (TCS), India’s largest software services exporter, is optimistic about a revival in spending from its retail and manufacturing clients in North America, following a recovery in its banking and financial services segment. According to TCS CFO Samir Seksaria, recent positive developments in U.S. retail sales and the easing of labor issues in manufacturing could signal a strong rebound for these sectors.

"We’ve heard about strong holiday season sales in the U.S., which should boost consumer sentiment, and manufacturing is beginning to resolve some of the labor challenges they faced," Seksaria said in an interview with Reuters. "If these sectors, along with banking, show improvement, we could see a strong overall recovery."
Economic Uncertainty and Tech Spending Caution

Despite the optimism, Seksaria also acknowledged the broader global economic uncertainties, including persistent inflation, which have led clients to remain cautious with their tech spending. This caution has affected TCS’s performance in North America, its largest market, where revenue has declined for the fifth consecutive quarter. However, the company’s banking and financial services vertical posted its best performance since June 2023.

Retail and manufacturing are TCS's second- and fourth-largest revenue contributors, respectively, and the company is hopeful these sectors will help drive growth in the coming quarters.
Strong Holiday Sales Boost Consumer Sentiment

Retail giants such as Walmart, Amazon, and e-commerce platforms like Shein and PDD Holding’s Temu saw record-breaking sales during Black Friday and Cyber Monday, signaling a healthy consumer outlook. U.S. online spending surged nearly 9 per cent to $241.4 billion during the recent holiday season, further boosting TCS’s hopes for a retail revival.

Interest Rates and Capital-Intensive Sectors
Seksaria also highlighted that TCS’s communications and media vertical, which has struggled in recent quarters due to its capital-intensive nature, could see improvement if interest rates begin to decrease. This sector’s performance is closely tied to changes in the broader economic environment, particularly the cost of capital.

Confidence in the US Market

TCS CEO Krithivasan shared similar sentiments, noting that the incoming U.S. administration could help remove policy uncertainties, potentially boosting client confidence and encouraging spending on discretionary projects. This optimism was reflected in TCS’s stock performance, with shares in the company rising 5.6 per cent on Friday, marking its highest single-day gain since July 2024.
Concerns Over Insourcing and Global Capability Centres

TCS also addressed concerns over the rise of insourcing by multinational corporations, with many companies expanding their in-house teams through global capability centres (GCCs) in India. These centres, which are increasingly focused on roles such as engineering, cybersecurity, and accounting, could potentially reduce the outsourcing of IT work to companies like TCS.
While the growth of GCCs may offer a short-term cost advantage, Seksaria believes that maintaining cost efficiency over a longer period could prove challenging. "Initially, GCCs might be seen as cost-saving centers, but over the next few years, maintaining cost productivity will be key," he explained.

Despite this trend, TCS remains confident in its ability to adapt, citing its acquisition of PostBank AG's unit in 2020 and Infosys's acquisition of Danske Bank's captive arm in 2023 as examples of how Indian IT companies continue to expand their global presence.