India's leading IT firms, including Tata Consultancy Services (TCS), Infosys, HCLTech, and Tata Elxsi, have reported a combined profit slump of approximately ₹4,500 crore in their Q3 earnings. This downturn is primarily attributed to the implementation of the new labor codes introduced by the central government.

Impact of New Labour Codes

The new labour codes, which came into effect in November 2025, have had a significant impact on the financial results of these IT giants. These codes redefine "wages," expanding the base for gratuity, provident fund, and leave encashment. As a result, companies had to recognize higher past service liabilities, leading to one-time charges.

Infosys reported a decline in profit for the December quarter, amounting to ₹6,654 crore, compared to ₹6,806 crore in the same quarter of the previous fiscal year. The company attributed this fall to a ₹1,289 crore hit due to the implementation of the new labour codes. These adjustments encompass an increase in gratuity liability arising from past service costs and an increase in leave liability.

HCLTech also experienced an 11.2% year-on-year decline in consolidated net profit, falling to ₹4,076 crore in the October-December quarter. This was impacted by a one-time provision of ₹719 crore for the implementation of the new labor codes. However, HCLTech's Chief People Officer, Ram Sundararajan, stated that the company had already factored in all necessary provisions and did not foresee further substantial incremental costs related to the new rules.

TCS reported a 13.9% decline in its net profit at ₹10,657 crore for Q3FY26, from ₹12,380 crore in the year-ago quarter. The company's bottom line was impacted due to restructuring expenses, one-time charges arising from changes in labour codes, and a provision of ₹1,010 crore for a legal claim. TCS booked a one-time labor code provision of Rs 2,128 crore, including Rs 1,800 crore toward gratuity and Rs 300 crore toward leave liabilities.

Tata Elxsi reported a 45% drop in its consolidated net profit at ₹108.89 crore in Q3FY26. The company reported a profit of ₹199 crore in the same quarter last year. The decline in net profit was primarily due to a one-time charge incurred towards the deployment of new labour codes. Tata Elxsi took an exceptional charge of 956.9 million rupees for the reported quarter, citing a one-time increase in employee benefit provisions following India's new labor codes.

Other Factors and Performance Highlights

Besides the impact of the new labour codes, the IT companies faced other challenges and demonstrated varied performance across different segments and geographies.

TCS's revenue grew 4.9 per cent in reported terms to ₹67,087 crore in Q3FY26. Samir Seksaria, chief financial officer of TCS, highlighted the sustained margin performance and strong cash conversion, reflecting disciplined execution and financial resilience. However, the company's headcount continued to decline during the quarter.

Infosys' revenues from core operations jumped nearly 9% to ₹45,479 crore. The company also raised its revenue growth guidance for fiscal 2026, projecting growth in the range of 3.0% to 3.5% in constant currency terms.

HCLTech's revenue from operations rose 13.3% to ₹33,872 crore in Q3 FY26. HCLTech's CEO and Managing Director, C Vijayakumar, said that the company crossed a key revenue milestone during the quarter. New bookings were exceptionally high at USD 3 billion.

Tata Elxsi's revenue from operations stood at ₹953.47 crore for the quarter, up 1.5 per cent year-on-year. Manoj Raghavan, chief executive officer and managing director of Tata Elxsi, mentioned that the Media and Communications, and the Healthcare and Life Sciences verticals were impacted by seasonal furloughs and some key deal awards that were delayed at the end of the quarter.

Analysts' Perspectives

Despite the profit slump, analysts remain cautiously optimistic about the long-term prospects of these IT companies. Motilal Oswal has issued a 'Sell' rating for Tata Elxsi after its Q3 FY26 results. PL Capital retains Buy rating with a target price of ₹4,040 for TCS, citing strong deal wins, stabilising margins and improving traction in AI as key positives supporting the stock's long-term outlook.