TCS and Infosys Face Pressure as Key Clients Cut Budgets

The IT services giants TCS and Infosys have been facing challenges as key clients reduce their business, marking a significant trend within the Indian IT sector. This shift, seen especially in larger accounts, could potentially slow down growth for these 2 companies amidst global uncertainties.

TCS Faces Decline in Key Accounts

Tata Consultancy Services (TCS), one of India's largest IT services firms, saw a decline in business from Citigroup Inc. and Postbank, a subsidiary of Deutsche Bank, in FY25. Both are part of TCS's top 30 clients, and the reduction in revenue from these accounts mirrors the broader trend within the IT industry. Specifically, TCS’s E-Serve subsidiary, which focuses on Citigroup’s India-based back-end operations, reported a 31% decline in revenue, falling to $155 million.

This decline in business, although not significant in comparison to TCS’s overall revenue, highlights a broader concern about the future of its relationships with key clients. In addition to Citigroup, TCS Tech Solutions GmbH, a subsidiary acquired from Deutsche Bank, also saw its revenue dip by 33% to €126 million (approximately $136 million).

Infosys Struggles with Daimler Revenue Dip

Similarly, Infosys has faced a reduction in revenue from Daimler AG, the German automotive company. Infosys Automotive and Mobility GmbH, a subsidiary managing the Daimler account, reported a decline of 8.5% in revenue, bringing it down to $418 million in FY25. This marked the first time in 3 years that the subsidiary did not show growth, which had previously been over 40% annually.

Daimler’s decision to scale back its operations with Infosys is a significant event for the company, as it had signed a lucrative $3 billion contract with the automaker in 2020.

The Impact of Reduced Business Across the IT Sector

According to a report, the trend of marquee clients reducing business is not exclusive to TCS and Infosys. Smaller IT firms, such as Hexaware Technologies and Mphasis, have also reported declining revenues from top clients. For example, Hexaware is expected to experience a drop in business from Fannie Mae, one of its largest accounts, while Mphasis has lost significant business to Accenture in its dealings with FedEx.

This shift is reflective of a wider industry trend where clients are becoming more cautious with their budgets, especially amidst global uncertainties like economic slowdowns, rising inflation, and market volatility.

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Conclusion

The challenges faced by TCS and Infosys highlight a broader trend of reduced spending from key clients in the IT sector. As major players like Citigroup, Deutsche Bank, and Daimler trim their budgets, both companies are grappling with slower growth rates. The struggle to secure mega deals adds another layer of complexity to their strategies for future growth. As the global economic landscape remains uncertain, these companies may need to adjust their approaches to navigating a shifting market.

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