IT sector braces for job cuts: TCS leads with 12,000 layoffs.

Tata Consultancy Services (TCS) has announced the layoff of around 12,000 employees, affecting the IT sector. TCS had the highest number of employees in FY25, at 636,833, followed by Infosys and Wipro. The industry has seen high voluntary attrition rates in Q1 FY26. Around one-third to half of IT companies' revenues were spent on employees in the past six years.

Tata Consultancy Services (TCS), India's largest IT services company, has announced the layoff of around 12,000 employees, a move that has sent shockwaves through the IT sector. This decision comes amidst a broader strategy by TCS to become a "future-ready organisation" by focusing on investments in technology, AI deployment, market expansion, and workforce realignment [1].

TCS, which had the highest number of employees in FY25 at 636,833, has seen a significant reduction in its workforce. The layoffs, which began in the first half of July, are primarily affecting mid and senior grades, with a total of 12,261 employees set to be released [1]. This decision is not solely driven by AI, but rather by a skill mismatch and the need to align the workforce with the company's strategic goals [1].

The IT industry has been facing high voluntary attrition rates, with TCS not being an exception. In the first quarter of FY26, the industry witnessed an increased attrition rate, with TCS and other major IT companies experiencing a 1-3 percentage point increase compared to FY24 [2]. This trend is likely to be exacerbated by the ongoing layoffs, which could negatively impact employee morale and potentially lead to higher attrition rates in the future [3].

The layoffs at TCS are not isolated but part of a broader trend within the IT sector. India's top four IT services companies—TCS, Infosys, Wipro, and HCLTech—have collectively reduced their headcount by over 42,000 employees in the past two years. Wipro recorded the steepest decline, with a reduction of 25,200 jobs since 2023, followed by Infosys with 12,506 employees and TCS with 2,249 employees [4].

Investors are concerned about the implications of these layoffs. The Nifty IT index has become 2025's worst-performing sector, plunging 24% from its peak into bear market territory. The contrast with Meta's layoffs highlights the different nature of the challenges faced by TCS and the broader IT sector. While Meta was cutting excess hires during pandemic-era growth, TCS is grappling with demand-related issues [3].

The layoffs at TCS are a stark reminder of the challenges facing the IT sector. The industry's focus on cost-cutting and AI-driven productivity gains is leading to a vicious cycle where IT firms are forced to lay off employees to manage costs. This structural shift is likely to have significant implications for the IT sector and investors alike.

References:

[1] https://www.livemint.com/companies/news/tcs-layoffs-ai-not-a-reason-it-ministry-keeps-a-watch-as-12-000-employees-set-to-lose-jobs-5-top-updates-11753759414983.html
[2] https://www.business-standard.com/industry/news/statsguru-has-tcs-s-job-cut-signal-set-the-tone-for-the-it-industry-125080300671_1.html
[3] https://m.economictimes.com/markets/stocks/news/explained-why-tcs-firing-12000-employees-may-be-a-canary-in-the-mine-and-what-it-means-for-investors/articleshow/122947344.cms
[4] https://www.storyboard18.com/how-it-works/tcs-infosys-wipro-and-hcl-tech-headcount-reduces-by-over-42000-in-two-years-77264.htm