Explained: Why TCS firing 12,000 employees may be a canary in the mine and what it means for investors

When Mark Zuckerberg announced in November 2022 that Meta would slash its workforce by 13% and lay off around 13,000 employees, shareholders celebrated the cost-cutting exercise with double-digit stock gains in the following days. But Tata Consultancy Services' (TCS) decision to fire 12,000 workers tells a vastly different story, one that has investors running for the exits.

India's largest IT exporter has decided to lay off roughly 2% of its workforce, or over 12,000 employees, as macro uncertainties and AI-led technology disruptions continue to pummel business demand. The announcement sent TCS shares tumbling up to 1.7% to a day's low of Rs 3,081.20 on BSE, adding to the stock's brutal 25% decline in calendar year 2025. The pain spread to peers like Infosys, which fell 2% during the day.


Also Read | TCS shares slip nearly 2% after company announces over 12,000 layoffs

Why TCS layoff is worrying

The contrast with Meta's experience reveals the fundamental difference between TCS' situation and typical tech layoffs. While Meta was cutting excess hires during pandemic-era growth, TCS is grappling with demand-related issues.

Jefferies delivered a stark warning about what TCS' workforce reduction really means: "TCS' move to cut 2% of its workforce may lead to execution slippages in the near-term and higher attrition in the longer-run for the firm and reflects a weak demand environment for the sector. With most deal wins being led by cost-optimisation initiatives and involving AI-led productivity pass-through, IT firms unable to gain share may have to resort to lay-offs."

The Nifty IT index has become 2025's worst-performing sector, plunging 24% from its peak into bear market territory. This isn't just about one company's struggles; it's a sector-wide crisis that's reshaping how investors view India's once-celebrated IT services industry.

Jefferies explained the broader implications: "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 and is the third such move in the past 3 months after deferral of wage hikes in Apr-25 and the benching guidelines introduced in Jun-25, which restricted the non-billable period of an employee to 35 days/year."

The brokerage warned that despite TCS traditionally enjoying lower-than-industry attrition levels due to job stability, "the ongoing lay-offs will hurt employee morale and could potentially lead to execution slippages. In the longer run, such policies could drive a sharp rise in attrition, similar to what was seen at Cognizant during 2020-22."

Also Read | TCS layoffs: IT major to mass fire 12,000 senior, mid-level staffers amid AI push

The AI factor

What makes this downturn particularly concerning is its root cause: artificial intelligence is fundamentally changing how IT services work gets done. Jefferies noted that "with cost-optimisation being the key driver for new deal wins, clients are asking for productivity benefits—a trend which is also growing due to the rise in AI adoption."

This creates a vicious cycle where "IT firms do more work with the same number of employees (wallet share gains) or the same work with fewer employees. The 2nd scenario eventually leads to lay-offs as redeployment of bench takes longer when demand environment is weak."

Elara downgraded TCS to Accumulate from Buy, cutting its target price to Rs 3,770 from Rs 3,970. The brokerage cited multiple headwinds: "discretionary spend continues to be under heightened scrutiny, the new tariff order is adding further pain to some sectors such as Pharma, spending in Energy has reduced due to policy changes and geopolitical tensions, and BFSI is subdued in Europe and the UK."

Elara is building in modest recovery expectations: "We build in some recovery from FY27 and factor in ~3.5% growth in FY27E. We cut FY26E/27E EBIT margin estimates by 50/60bps, led by a rise in attrition and possible further pressure on margin due to the new BSNL deal."

For investors, the message is clear: this isn't a temporary blip but a structural shift requiring careful stock selection. Jefferies advised: "Given the current demand uncertainties, earnings outlook for IT firms may remain subdued, due to which we remain selective on the sector."

Among large caps, the brokerage favors Infosys and HCLTech, noting that HCL "has emerged as a strong alternative to TCS given that it trades at similar PE multiples despite stronger growth outlook and similar FCF conversion." For mid-caps, Coforge and Mphasis get the nod "given their stronger growth outlook."

TCS' layoffs aren't just about one company managing costs, but a canary in the coal mine for India's IT services industry, as Jefferies puts it.