Chandrasekaran’s long game finally has public numbers — and they cut both ways

N Chandrasekaran is asking for the same indulgence. Tata Sons’ FY26 annual report is, in effect, an argument that semiconductors, aviation, electronics, batteries, and defence should be viewed through a decade-long lens rather than an annual one. It is also the first time that the chairman has publicly and systematically defended investments that have reportedly become the principal point of discussion between him and Noel Tata.

Chairmen’s letters are usually exercises in measured optimism. This one reads more like a philosophical defence of long-term investing. Chandrasekaran invokes Jamsetji Tata’s decision to back an institute of science he would never see completed and draws a direct line to today’s investments.

“Chips are the new steel,” he writes. Air India’s transformation, he argues, “must be seen as a five- to ten-year journey”. The recurring theme is that the Tata group must build for India in 2047, not merely report quarterly profits in 2026. As strategy, the argument is persuasive. Large manufacturing businesses rarely reward impatience. Semiconductor fabs consume billions before producing a commercially viable wafer.

Airlines are notorious for destroying capital before creating value. Battery manufacturing demands years of investment before scale delivers competitive costs. Judging such businesses by annual profits is like judging a bridge after its foundations have been laid.

The annual report also demonstrates that the group is hardly under financial distress. Tata Sons’ standalone profit rose by 21.8% to `31,961 crore in FY26. Consolidated profit jumped 52% to `1.7 lakh crore, more than five times the level of FY20. The holding company remains debt-free and holds net cash of `21,841 crore. This is not a conglomerate betting its survival on a handful of risky ventures.

Nor is every new investment struggling. Tata Electronics, established only in 2020, has already become the group’s fourth-largest company by revenue, at `1.31 lakh crore. It has achieved operating break-even and manufactured 12% of the global leader’s smartphone volumes last year.

Even Noel Tata is understood to have acknowledged the remarkable speed of this ramp-up, while seeking greater transparency on the performance of its individual businesses, including mobile manufacturing, the Gujarat semiconductor fab, and the Outsourced Semiconductor Assembly and Test project.

Yet this is only half the story.

The same annual report that makes the case for patience also reveals the scale of the challenge. The combined FY26 losses of Air India, Tata Digital, Tata Electronics, Agratas, and Tejas Networks approached `30,800 crore, almost double the previous year’s `16,000 crore.

Air India alone accounted for `22,238 crore of losses, more than twice the previous year, even as revenue declined. Tata Digital’s losses widened despite its strategic reset. Tejas Networks, after the successful BSNL rollout, saw revenue collapse as orders dried up, exposing the risks of dependence on a single customer. Agratas lost over `1,100 crore before commercial production had even begun. Elsewhere, Tata Chemicals slipped into the red, Tata Realty and Tata Projects continued to lose money, while Tata Teleservices added yet another chapter to a restructuring story that has stretched over two decades.

The issue, therefore, is not whether Tata Sons can afford these investments. It clearly can. Nor is it whether losses are acceptable while businesses are being built. In many industries, they are inevitable. The real issue is something subtler — capital allocation.

Conglomerates do not distinguish themselves merely by making bold bets. They distinguish themselves by continually reassessing those bets as new information emerges. Good capital allocation requires conviction at the beginning, but humility thereafter. It demands knowing when to invest more aggressively, when to slow down, when to alter strategy, and, occasionally, when to accept that an original assumption no longer holds. Patience is a virtue. Persistence can become a vice if it blinds management to changing realities.

The debate is unlikely to be about whether Tata Sons should invest in semiconductors or aviation. Those decisions have effectively been made. The more important question is whether the board is receiving enough information to judge the quality of execution, the pace of improvement, and the continuing case for fresh capital. That’s what gives investors confidence that bold strategies will remain disciplined.

The timing also matters. The conglomerate’s financial strength ultimately rests on TCS, whose market value has fallen sharply over the past year amid questions about how artificial intelligence may reshape the IT services industry. Chandrasekaran is confident that TCS will emerge stronger from that transition. He may well be right. But it is precisely when the principal source of cash faces greater uncertainty that scrutiny of capital allocation elsewhere inevitably intensifies.

None of this weakens Chandrasekaran’s central argument. History suggests that many of Tata’s finest businesses demanded patience before they rewarded it. But history also suggests something else. Successful institution-builders are remembered not only for taking bold decisions but for adapting them as circumstances evolve.

Four years ago, at a Leadership Award event in Mumbai, Chandrasekaran offered a revealing glimpse into his management philosophy. “The only person who doesn’t make mistakes is someone who doesn’t do anything,” he said. “It’s scary actually, if you’re right all the time.” The remark sounded casual then. Read alongside the annual report, it feels more like a statement of belief. Institution-building, in Chandrasekaran’s telling, demands bold decisions, some of which will inevitably look expensive before they look wise.

But the larger obligation lies elsewhere — to recognise mistakes early, measure them honestly, and correct them decisively. The still-undisclosed three-year plan must therefore deliver dated loss-reduction targets for Air India, a credible path to viability for Tata Digital’s pivot, greater transparency at Tata Electronics, and a more diversified order book at Tejas. Chandrasekaran has reportedly begun deferring aircraft deliveries and tempering Air India’s expansion. The instinct is right; it now needs to be public, measurable, and binding.

The FY26 annual report makes a thoughtful and credible case for patience. The reports that follow will have to make the case for progress. That, ultimately, is the standard by which not only Chandrasekaran, but every great institution-builder, is judged.