Tech Spending Uptick Expected in North America
India’s largest software-services exporter, Tata Consultancy Services (TCS), is anticipating a surge in tech spending from its retail and manufacturing clients in North America. This optimism stems from the recent upturn in its banking and financial services segment.
Positive Signs from Holiday Season Sales
The company’s Chief Financial Officer, Samir Seksaria, attributes this expected growth to the strong holiday season sales in the US, which should boost consumer sentiment. Additionally, the resolution of labor issues in the manufacturing sector is also expected to contribute to this upswing.
Cautious Optimism Amidst Global Economic Uncertainties
While Seksaria’s outlook is positive, he acknowledges the broader global economic uncertainties and sticky inflation that have forced clients to be cautious with their tech spending. This has resulted in a decline in TCS’ revenue in North America, its largest market, for the fifth consecutive quarter.
Retail and Manufacturing: Key Contributors
Retail and manufacturing are the second- and fourth-largest revenue contributors to TCS, respectively. The company is hoping that an improvement in these verticals, along with banking, will lead to a good recovery.
E-commerce Boom
The recent record-breaking sales on Black Friday and Cyber Monday by retailers such as Walmart, Shein, and PDD Holding’s Temu, as well as the 9% rise in US online spending during the holiday season, are indicative of a growing demand for tech services.
Communications and Media: A Potential Bright Spot
Seksaria also expects the communications and media vertical, which has been a laggard, to see some improvement if interest rates start to decline. This segment is capital-intensive and has been a challenge for the company.
Insourcing Concerns Downplayed
TCS has played down concerns over the rise of insourcing by multinational corporations through global capability centers (GCCs), which could potentially reduce work for IT players. While GCCs may offer cost advantages in the short term, maintaining cost and delivering cost productivity over a 3-7 year period is a significant challenge.
GCC Market Growth
The India GCC market size is estimated to reach $105 billion by 2030, with many global companies expanding their local offices in India and adding roles such as engineering, cybersecurity, and accounting and finance.
TCS Shares Soar
On Friday, TCS’ Mumbai-listed shares closed up 5.6%, its highest single-day rise since July 2024, reflecting the company’s positive outlook.
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