Indian IT reboots in time for an easy recession

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The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Pranav Kiran

BENGALURU, Jan 19 (Reuters Breakingviews) -India’s army of information technology workers may think twice before ditching their jobs this year. It will make it easier for outsourcers from $150 billion Tata Consultancy Services TCS.NS to U.S.-based Cognizant Technology Solutions CTSH.O, and the top global companies they serve, to ride the economic downturn.

Startups and global technology firms used high pay and perks - including free BMW motorcycles and trips to watch World Cup cricket in Dubai - to lure workers in the South Asian country away from traditional back-office service providers. But the aggressive hirers are now laying off staff as venture capitalists write fewer cheques.

It eases the IT industry’s top headache: Job hoppers caused companies to churn through about a fifth of their workforce in 2022. It was a problem that awkwardly coincided with more customer demand. The pandemic turbocharged client spending on moving businesses to the cloud and improving cybersecurity. Commercial outsourcing contracts worth $5 million or more hit $95 billion in 2022, nearly doubling from 2018, according to research firm ISG.

The employment problem is passing. TCS last week reported attrition in the last twelve months at 21.3% of its 614,000 employees in December quarter, lower than the prior quarter but higher than its five-year average of about 12%. The number should continue to fall as salary expectations moderate. As a result, TCS’s operating margin rose 0.5% to 24.5% quarter-on-quarter and the company expects it to hit 25% for the full year, closer to its five-year average. Earnings from Wipro WIPR.NS and HCL Technologies HCLT.NS reveal similar trends. It’s a relief for all of those with big workforces in India who will now grapple with a looming slowdown in IT spending in the United States and Europe, homes to the industry’s top customers. Clients are already making decisions more slowly.

A cyclical slowdown in growth is a simpler problem than rising wages. The latter threatens the emerging market’s long-term cost-advantage. For now, India-based companies, which offer lower-cost services, will gain on their overseas peers. Revenue at top local firms grew at a 16% compound annual rate during the global financial crisis between 2007 and 2010 in U.S. dollar terms, per Fitch, while the top line was flat or declining at U.S.-based Accenture ACN.N, France’s Capgemini CAPP.PA and Atos ATOS.PA. How aggressively startups regain their mojo will determine whether India lifts its 15% share of worldwide IT services spending to 22% by 2031, as Morgan Stanley expects. For now, at least, everyone can breathe a bit easier.

Follow @PranavKiranBV on Twitter


India's Wipro on Jan. 13 reported its net profit increased 2.8% year-on-year to 30.5 billion rupees ($375 million) in the December quarter. The company said voluntary employee attrition of 21.2% moderated 180 basis points from the previous quarter. It measures attrition in trailing twelve months for the quarter.

Tata Consultancy Services on Jan. 9 reported a 11% year-on-year increase in net profit to 108.5 billion rupees ($1.32 billion) for the quarter. Last twelve months attrition was lower at 21.3% compared with 21.5% in the second quarter.

Editing by Una Galani and Katrina Hamlin


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