AI-led deals are being priced at a premium even as client confidence shows signs of recovery, Tata Consultancy Services CEO K Krithivasan said, indicating that demand for technology modernisation anchored in artificial intelligence is strengthening across sectors. The company reported steady deal momentum, rising AI-linked revenues, and continued investment in infrastructure and partnerships, while maintaining its capital return policy. Krithivasan and Chief Financial Officer Samir Seksaria spoke to Urvi Malvania. Excerpts:
You’ve seen sequential growth over the past three quarters, but a decline on a constant currency basis annually. How should the current growth trajectory be read?
Krithivasan: The first quarter saw a sharp decline for known reasons, but since then, we have delivered sequential growth. The order book remains strong, client metrics have improved, and overall confidence levels are better than before. We are seeing more willingness among clients to initiate new engagements, which had been muted for some time. Direct exposure to West Asia is limited for us. The impact so far has been largely confined to travel and transportation. Beyond that, we have not seen any material disruption. If the situation escalates and begins to affect global economic activity, it could have a broader impact across supply chains, manufacturing, and technology, which may then flow into other sectors. At present, we are not seeing that play out.
How are AI engagements evolving, particularly in terms of movement from pilots to revenue?
Krithivasan: From a revenue standpoint, annualised revenue from AI-led projects is about $2.3 billion, up from $1.8 billion in the previous quarter. These are programmes where AI is integral to technology modernisation or embedded in the end solution delivered to clients. This does not include internal productivity gains from AI in software engineering. We are seeing adoption across geographies and industry verticals. Clients are moving beyond pilots and are willing to scale programmes, which is reflected in the revenue trajectory.
How are deal conversions, ramp-ups and pricing trends evolving, and what role is AI playing?
Krithivasan: AI-led deals are coming at a higher price point compared to non-AI deals, and that trend is expected to continue. In terms of deal conversion and ramp-up, we do not see a direct impact from geopolitical factors at this stage. AI is creating new opportunities, particularly through technology modernisation initiatives. As clients adopt AI, we expect a broader pipeline of deals to emerge. This should support overall deal momentum.
How do you see AI interacting with traditional service lines over time?
Krithivasan: When digital technologies emerged, initial revenues were modest but scaled over time, even as some traditional service lines declined. We expect a similar pattern with AI. AI-led revenues will grow gradually, while traditional revenues may shrink. However, AI is likely to drive incremental technology spending, which should more than offset any decline in legacy areas. Over time, the net effect is expected to be positive.
What are your investment priorities going into FY27, especially in AI infrastructure and partnerships?
Seksaria: Investments are split between those reflected on the balance sheet and those that flow through the profit and loss account. For instance, training infrastructure is expensed, while acquisitions are capitalised. Capex for FY26 was about `5,000 crore, and we expect a similar level going forward. Investments in AI infrastructure, including initiatives such as HyperVault, are incremental. We have also announced an equity partnership with TPG for this, with funding planned through a mix of equity and debt.
How are you balancing growth investments with shareholder returns?
Seksaria: Growth remains the priority, but we continue to follow a shareholder-friendly capital allocation policy. A substantial portion of free cash flows is returned to shareholders, while ensuring adequate investment to support growth. Currency movements also had an impact during the period. The depreciation of the rupee against major currencies such as the dollar, pound, euro, Australian dollar and Canadian dollar led to a sequential revenue benefit of about 400 basis points and a margin tailwind of around 100 basis points. At the same time, we made investments in employee-related costs, including subcontracting, niche hiring, recruitment and training, as well as in integration of acquisitions and some CSR initiatives. These were offset by the currency-related gains.