Indian IT reboots in time for an easy recession
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
CONTEXT NEWS
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
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
