New Delhi [India], July 29 : The recent report of layoffs by Tata Consultancy Services' (TCS) decision to lay off 2 per cent of its workforce, around 12,000 employees, as part of cost-cutting measures could negatively impact the company in the long run, according to a report by Jefferies.
The report noted that this move reflects the company's increasing focus on conserving margins amid persistent growth challenges. It is also third such cost-saving action taken by TCS in the past three months.
Earlier, the IT giant deferred wage hikes in April 2025 and introduced new benching guidelines in June 2025. The updated benching policy now limits the non-billable period of an employee to just 35 days in a year.
Jefferies stated, "Focus on cost-cutting may hurt TCS in longer-run...: The move by TCS reflects its growing focus on conserving margins amid continued growth pressures"
According to the report, TCS has historically not been among the top paymasters in the industry, but it has managed to maintain lower-than-average attrition levels due to its focus on providing long-term career growth and job stability.
However, the report cautioned that the current round of layoffs could damage employee morale in the near term and potentially lead to execution slippages.
In the longer term, such cost-cutting measures might result in a sharp rise in attrition, similar to the trend witnessed at Cognizant between 2020 and 2022.
While the layoffs at TCS appear to be more company-specific, Jefferies highlighted that the overall net hiring in the IT industry has remained weak since FY22. This is mainly due to a prolonged moderation in the demand outlook.
Cost optimization has become a key factor for winning new deals in the IT sector, with clients increasingly demanding productivity improvements.
This trend is also being driven by the growing adoption of Artificial Intelligence (AI), which is enabling firms to either do more work with the same number of employees or deliver the same results with fewer workers.
The second scenario naturally results in layoffs, especially as redeployment of employees on the bench takes longer during periods of weak demand.
The report also pointed out that IT companies with slowing growth are already operating at higher utilization rates, meaning they are maintaining thinner benches. On the other hand, firms with a stronger growth outlook are still working with relatively lower utilization levels.
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