TCS defers wage hike: What does it signal for IT sector employees & economy?

TCS wage hike: India's largest IT services company, Tata Consultancy Services (TCS), has signaled delayed wage hikes for its employees in FY26 as it navigates a period of demand uncertainty, sparked by the global trade war.

The IT bellwether, which has an employee count of 6,07,979 as of March 2025, said it would give wage hikes in the latter part of the year once there is clarity and the global outlook improves.

“We will decide during the year when to make the wage hike,” said Milind Lakkad, chief human resources officer of TCS, in a post-earnings press conference. He also denied giving out any details on the percentage of quantum of hikes employees can expect.

This has not only sparked concerns about employee morale and retention but also raised important questions about its implications for both the global and Indian economies.

What does the delayed wage hike at TCS mean for the economy?

Analysts believe TCS commentary reflects uncertainty in the demand environment and the cautious global market mood. Fears of a recession in the US have already sparked a selloff in IT stocks lately, sending many big IT names like Infosys to 52-week low levels.

Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers, said, "TCS commentary reflects more uncertainty rather than a definitive indication that the global growth is slowing down. Hajra added that even in the worst-case scenario of a global recession, he doesn't see a disproportionate impact on the business process outsourcing or IT spend.

"On the contrary, there are reasons to argue that as the growth slows down, the pressure to cut costs on corporate actually rises. So in that sense, the chances of their increasing the proportion of outsourcing actually increase rather than decrease," Hajra added.

TCS management maintained a positive outlook for FY26 and expects this financial year to be better than FY25, especially in international markets. They expect sectors such as Retail, CPG, Travel, and Automotive to be the most affected due to tariffs. The demand environment in BFSI, which is its biggest revenue generator, remains strong, except for Insurance, which has been experiencing some challenges. BFSI accounts for over 30% of the company's revenue.

Commenting on the impact of delayed wage hikes on the Indian economy, Madhavi Arora - Chief Economist - Emkay Global Financial Services said this reflects broader economic uncertainty, particularly tied to the global and US economic outlook.

The US economy acts as a leading indicator for Indian IT companies, given their significant revenue exposure (about 60%) to US clients. Any uncertainty in the US economy affects Indian management decisions, particularly in cost control.

This is how the chain reaction of slowdown in the globalized world happens – Where one person is sneezing and everybody else is catching a cold, Arora opined, adding that given TCS' huge employment scale, and especially in the middle-income categories, delayed wake hikes will hit the purchasing power, impacting the Indian economy.

According to Arora, the deferred wage hikes will likely hurt middle-income groups and urban consumption, particularly since IT salaries played a major role in post-COVID demand recovery. She highlighted that there was a surge in tech spending and aggressive salary hikes post-COVID (up to 50% increases in some cases), which has now settled, and with renewed US uncertainty, companies are more cautious.

What does it mean for IT sector overall?

Given TCS's stature, analysts believe it sets the tone for the entire sector, and companies like Infosys and Wipro, who are slated to post their earnings in the coming weeks, may also signal similar moves.

Arora highlighted that it is unlikely this wage hike deferment would be unique only to TCS, as the entire IT sector is under pressure. Employees may consider switching companies, but the same challenges exist across the industry, she said.

Analysts also see margin pressure on the companies rising if attrition spikes amid a lack of wage hikes. For TCS, attrition rose to 13.3% from 13% on a quarter-on-quarter basis. However, India’s largest IT services firm continued to expand its workforce, adding a net 6,433 employees during the period.

TCS also plans to hire about 42,000 engineers from campuses in FY26, largely in line with the hiring trend of FY25.

TCS earnings snapshot

The Tata group company posted a consolidated profit after tax (PAT) for Q4FY25 at ₹12,224 crore, down 1.7% from the profit of ₹12,434 crore reported for the corresponding quarter of the previous financial year. Consolidated revenue from operations for the quarter stood at ₹64,479 crore. This was 5.3% year-on-year against ₹61,237 crore in the same quarter last year.

The company's operating margin for the quarter stood at 24.2%, while net margin was 19%.

TCS share price was trading flat-to-positive on the BSE today.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.