IT Sector Trend: TCS Layoff, Infosys Buyback

What’s Happening in the IT Industry?

India’s information technology sector—once the country’s most reliable engine of growth—is entering one of its most testing phases. Once defined by stable hiring cycles, double-digit revenue growth, and robust overseas demand, the industry now faces a storm of structural shifts. Global macroeconomic conditions have tightened, discretionary tech spending has slowed, and the very foundation of traditional service models is being disrupted by automation and artificial intelligence (AI).

Tata Consultancy Services (TCS) and Infosys, the two bellwethers of the sector, have found themselves in the spotlight for very different reasons. TCS, long celebrated as the crown jewel of the Tata Group, has come under sharp criticism for the way it has handled employee restructuring, layoffs, and alleged forced resignations. The backlash is not merely about job cuts—it is about a perceived betrayal of the legacy of trust and dignity that Ratan Tata had once instilled into the group’s ethos.

Infosys, meanwhile, has chosen a contrasting route: a ₹18,000-crore buyback, Infosys share price at a 20% premium over the current market value, designed to deploy surplus cash efficiently and return wealth to shareholders. While this reflects a position of financial strength, it also signals that growth reinvestment opportunities might be narrowing in the current climate.

In parallel, Indian IT stocks have witnessed sharp movements, with the Nifty IT index emerging as a top performer in September 2025, thanks to the U.S. Federal Reserve’s 25-basis-point rate cut. As the majority of Indian IT revenues flow from North America, a lower cost of borrowing abroad directly boosts client spending potential. But is this bounce sustainable in the face of systemic challenges?

Industry Trend

The latest data shows that the Nifty IT index surged 28.7% in the past six months, propelled by both valuation re-ratings and hopes of improved global demand. The Fed’s rate cut has amplified this rally, pushing IT shares higher across the board—Infosys, Wipro, LTIMindtree, and Tech Mahindra all gained between 1–3% in a single session.

Yet beneath the surface, the industry faces multiple headwinds:

• Revenue growth moderation: Most Tier-1 IT companies are guiding for single-digit growth in FY26, far below their historic averages.
• Contract renewals under scrutiny: Global clients are squeezing vendors on pricing and renegotiating contracts, which has eroded margins.
• Shift in workforce demand: Traditional coding and maintenance jobs are declining, with higher demand for AI, cybersecurity, and cloud specialists.
• Rising competition from startups and SaaS firms: Smaller, agile players are winning niche contracts in areas like generative AI and cybersecurity.
• The sector is therefore entering a bifurcated phase: legacy services are shrinking, while next-gen digital and AI-driven services are growing—but not fast enough to fully offset the decline.

Why Infosys Buyback Now?

Infosys’ decision to launch a ₹18,000-crore share buyback is being positioned as a shareholder-friendly step, but timing is crucial. The buyback, priced at ₹1,800 per share (~20% above CMP), signals several deeper trends:

• Surplus cash and limited reinvestment avenues: Infosys has built strong reserves, but the current climate does not offer abundant high-return reinvestment opportunities. Instead of letting cash sit idle, the company is returning it to shareholders.
• Support to valuations: By reducing equity base, the buyback boosts earnings per share (EPS), stabilising valuations amid industry-wide growth uncertainty.
• Retail investor optics: With 15% reserved for retail investors, the company signals inclusivity, but in practice, modest acceptance ratios dilute the actual gains.
• Opportunity cost considerations: While the headline premium looks attractive, investors must factor in acceptance ratios (10–40%), taxation (TDS and income slabs), and opportunity costs of locking capital.

Infosys’ move is less about spectacular returns for investors and more about market signalling. It projects financial prudence, cushions its stock price in volatile times, and reassures shareholders that capital allocation is being actively managed.

The AI Factor Leading to Layoffs

The TCS layoff saga cannot be viewed in isolation—it is part of a global recalibration. AI and automation are not just buzzwords; they are reshaping the labour force equation in IT. Repetitive, rule-based processes such as testing, infrastructure support, and maintenance are increasingly being automated by AI platforms.

For companies like TCS, this raises an uncomfortable choice: reskill employees at scale or trim headcount. The recent allegations of forced resignations, “Fluidity List” designations, and sudden early retirements point to an industry still struggling with humane execution of these transitions.

From a macro perspective

• AI productivity gains: McKinsey estimates that AI could automate 40–50% of repetitive IT tasks within the next decade.
• Client expectations: Global clients now demand faster turnaround and efficiency, pushing vendors to adopt AI at scale.
• Employee displacement: The skills gap is widening—mid-level engineers risk redundancy unless they pivot to emerging fields like AI model training, prompt engineering, and cybersecurity.
• Cultural challenge: Legacy firms like TCS must balance cost efficiency with employee dignity, a balance that seems frayed amid growing employee protests.

What once was a people-driven industry is now becoming algorithm-driven, and the transition is proving painful for both companies and their employees.

IT’s Great Transformation

The Indian IT industry is not in decline—it is in transformation. The shift underway is arguably as significant as the Y2K opportunity that propelled it to global leadership. This transformation has five defining features:

• From services to products: Firms are increasingly building platforms, SaaS solutions, and IP-led offerings to capture recurring revenues.
• AI-first operations: AI is no longer an add-on but the backbone of service delivery, reshaping cost structures and client expectations.
• Reskilling imperative: Companies are investing heavily in upskilling programmes, though effectiveness remains uneven. The winners will be those who create truly future-ready talent pools.
• Global macro linkages: With 60%+ revenues coming from North America, Fed policy, U.S. tech budgets, and even U.S.–China trade dynamics will directly shape Indian IT fortunes.
• Ethics and employer branding: How companies handle layoffs, diversity, and employee well-being will increasingly influence both investor sentiment and client partnerships.

The real story, therefore, is not just about layoffs or buybacks—it is about an industry navigating a once-in-a-generation pivot.

Conclusion

The Indian IT sector stands at a crossroads. Infosys’ buyback and TCS’s layoff controversy are two sides of the same coin—one focused on capital efficiency, the other grappling with labour efficiency. Both highlight the deeper truth: the sector is in flux, caught between legacy service models and an AI-driven future. For investors, the buyback may offer modest, low-risk returns, but bigger opportunities may lie in mid-cap IT firms and AI-focused disruptors. For employees, the message is stark: reskill or risk redundancy. And for companies, the challenge is cultural as much as financial—how to embrace transformation without eroding the trust that built the industry in the first place.

As the festive season lifts IT stock prices and the Fed’s rate cuts provide tailwinds, the medium-term outlook remains cautiously optimistic. But beneath the optimism, a great reshaping is underway. The question is not whether Indian IT will survive—it will. The question is whether it can evolve quickly enough to remain the world’s trusted digital partner in an age of algorithms.