At bl.portfolio we recommended investors to book profits in TCS in January 2021 when it was trading at ₹3,303, and we had consistently asked investors to avoid the stock from then till now
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The Q2 results of TCS is like none ever in the past. Is it good or bad? That depends on which approach you believe in. For example, if you are a believer in Edward Freeman’s stakeholder theory that focuses on balancing the interest of all stakeholders (for long-term wealth creation) – shareholders, customers, employees, suppliers and community – the Q2 release is not good. With headcount declining by 19,755 in just Q2 alone, that’s an over 3 per cent workforce reduction in 92 days. The company has all the rights to decrease employee count, but there is a problem when it is high and transparency on the process is lacking, especially when you hear media reports that employees were coerced to submit resignation letters (which would make job axing appear like a voluntary attrition). With no press conference after Q2 results in the midst of such serious issues, it amplifies the lack of transparency with community and the company is not doing a good balancing act.
On the other hand, if you are ready to disregard the above and are a firm believer in the Friedman Doctrine as advocated by Milton Friedman, which states that “the social responsibility of a business is to increase its profits”, then Q2 results announcement firmly marks the biggest inflexion point in the history of TCS. With indications of a shift in long-term strategy with company announcing plans to build 1 GW capacity AI datacentre in India, the elephant wants to dance. That’s good news from a company that has, in the last 10 years, chosen to return close to 3 lakh crore to shareholders in the form of dividends and buybacks rather than mark out some of it for strategic investments to secure long-term growth. The current slowdown is a fallout of lack of investments in earlier years as the company had no other new segments to drive growth when core IT services business hit a brick wall.
To give a perspective on what this new strategy means, the recent announcement of a partnership between Nvidia and Open AI as per which Nvidia will invest $100 billion in Open AI to enable OpenAI to build a 10 GW data center, implies the cost of setting up a 1GW data center is upwards of $10 billion. The $10 billion number is the equivalent of almost 2 times of TCS’s FY25 net profit. The investment numbers for TCS will of course depending on where, how and by when it executes the project.
tempered approach
But don’t get excited right away. Irrespective of how shares react to the news, some tempered approach is required. For one, details are lacking on the strategy and timelines. Further, while such investments done well will finally secure better long-term growth for the company, it will take time to play out. In a bull market, markets will reward such announcements; however, in the interim of the project, whenever the markets come under pressure, companies investing heavy tend to underperform.
At bl.portfolio we recommended investors to book profits in TCS in January 2021 when it was trading at ₹3,303, and we had consistently asked investors to avoid the stock from then till now. Since then, in a little over 4.5 years, TCS shares are down 7 per cent, while Nifty 50 is up by 85 per cent. With our fundamental call on the stock well validated, with strategic announcement now, we believe its time to warm up to the stock but not yet. At 22 times PE, Q2 y-o-y constant currency revenue growth at negative 3.3 per cent, clarity is required on new investments; maybe the next bout of correction can provide good opportunity for long-term investors.
Published on October 9, 2025
