Tata Consultancy Services delivered a mixed performance in its third quarter results, with revenue growth offsetting a decline in profitability. The IT services giant reported sequential revenue growth while maintaining healthy operating margins, though net profit fell short of market expectations.

Financial Performance Overview

The company's Q3 financial metrics present a contrasting picture of operational strength and profit pressure:

Revenue Growth and Operational Efficiency

TCS achieved revenue of ₹67,000 crores in Q3, representing a 1.8% increase from the previous quarter's ₹65,799 crores. This performance slightly exceeded analyst estimates of ₹66,728 crores, demonstrating the company's ability to maintain growth momentum. The revenue expansion reflects continued demand for the company's IT services and digital transformation solutions.

Operational efficiency showed improvement with EBIT rising to ₹16,900 crores from ₹16,336 crores in the previous quarter. The EBIT margin expanded by 34 basis points to 25.17%, nearly matching analyst expectations of 25.20% and indicating effective cost management.

Profitability Challenges

Despite revenue growth and margin improvement, net profit declined significantly to ₹10,650 crores from ₹12,070 crores in the previous quarter, marking an 11.8% sequential decrease. This result fell considerably short of analyst estimates of ₹12,771 crores, suggesting potential impact from higher tax provisions, interest costs, or other below-the-line items.

Shareholder Returns

TCS announced substantial returns to shareholders through its dividend policy:

The combined dividend of ₹57 per share represents a significant payout to shareholders, with the special dividend of ₹46 per share being particularly noteworthy. This substantial distribution demonstrates the company's strong cash position and commitment to returning value to investors.

Market Performance Assessment

The Q3 results reflect TCS's resilience in maintaining revenue growth and operational efficiency despite challenging market conditions. While the revenue performance exceeded expectations and margins remained healthy, the decline in net profit highlights areas requiring management attention. The generous dividend announcement, particularly the special dividend, signals confidence in the company's financial strength and future prospects.

Indian markets staged a recovery on Monday as geopolitical developments, corporate earnings, and macroeconomic data shaped investor sentiment. The turnaround came after positive signals from India-US diplomatic relations, mixed corporate results from major IT companies, and encouraging inflation data that undershot estimates.

US-India Relations Boost Market Sentiment

Sergio Gor, the newly appointed US Ambassador to India, provided a significant boost to market confidence by describing India as Washington's most important ally. The ambassador confirmed that the next round of bilateral trade talks between the two nations will take place tomorrow, helping markets recover from early session weakness. This development comes at a crucial time as investors seek clarity on trade relationships amid global economic uncertainties.

Mixed IT Sector Earnings

TCS Q3 Performance

Tata Consultancy Services reported Q3 results that were broadly in line with street expectations across most parameters. However, the company's net profit was impacted by one-time labour code costs, which weighed on the bottom line despite meeting margin estimates.

HCLTech Outperforms

HCL Technologies delivered a stronger performance in Q3 FY26, posting sequential revenue growth and raising its growth guidance for the full year.

Inflation Data Surprises on Downside

India's macroeconomic indicators provided mixed signals as December inflation data came in below expectations while showing sequential acceleration.

The December CPI reading of 1.33% undershot the CNBC-TV18 poll estimate of 1.62%, providing some relief to policymakers. However, the month-on-month increase from November's 0.71% indicates emerging sequential pressures that warrant monitoring.

Global Developments Impact Sentiment

Global markets turned cautious following reports that the US Justice Department had opened a criminal probe involving Federal Reserve Chair Jerome Powell. This development has intensified concerns over potential political pressure on the central bank, adding to global market uncertainties.

Corporate and Policy Updates

Several other developments shaped market discourse throughout the day:

• Technology Sector: The Ministry of Electronics and Information Technology clarified that it has no plans to seek smartphone source code from major manufacturers like Apple and Samsung
• Energy Sector: Reliance Industries addressed market speculation by confirming its battery manufacturing plans remain on track within the established timeline
• Investment Flows: Private equity major Warburg Pincus outlined its India investment priorities, highlighting continued foreign investor interest in Indian markets

The convergence of positive diplomatic developments, mixed but largely in-line corporate earnings, and supportive inflation data helped Indian markets navigate through a complex news environment, setting a cautiously optimistic tone for upcoming sessions.