11.4 C
London
Thursday, September 29, 2022

US recession could cool IT sector churn along with revenues

Must read

Ian is expected to make landfall again as a hurricane, this time in South Carolina.

North Carolina and South Carolina were on alert Thursday as Ian headed for them after cutting a path of destruction through Florida and regaining...

Binance Founder Changpeng ‘CZ’ Zhao Shares His Vision of Web3 Capabilities at TC Sessions: Crypto • londonbusinessblog.com

When it comes to the decentralized world of crypto, there are few single entities that are bigger or hold more weight in the industry...

Limit reached – Join the EU Startups CLUB

€147/quarter This option is ideal for companies and investors who want to keep up to date with Europe's most promising startups, have full access...

Autodesk and Epic Games Bring Architecture Tools Immersion

While Autodesk architecture software like Revit is capable of creating 3D design plans, the collaboration introduces easy-to-use tools for designers, with features typically more...
Shreya Christinahttps://londonbusinessblog.com
Shreya has been with londonbusinessblog.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider londonbusinessblog.com team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

  • After two years of huge profits and mind-boggling salary increases, TCS, Infosys and Wipro – along with their employees – are bracing for a slowdown.
  • Concerns about a recession in the US and Europe – the key markets for Indian IT giants – have forced Indian IT companies to remain cautious going forward.
  • Analysts say the December quarter could be the “inflection point” in terms of wages and attrition.
  • Here we are trying to decipher where TCS, Infosys, Wipro and other Indian IT companies are going.

After two years of huge profits and mind-boggling salary increases, TCS, Infosys, Wipro and other Indian IT companies are treading a cautious path as wages and a likely slowdown in demand exacerbate margin problems. An economic slowdown in the US may not be so bad for Indian IT majors. Experts believe that a possible delay could have a positive effect on high wage costs and turnover.

A rapid shift towards digitization due to the Covid pandemic over the past two years has proved to be a major boon to the Indian IT sector. Giants like TCS, Infosys and Wipro mainly rely on the US and European markets, which represent 80-90% of their revenues.

Company TCS infosys wipro
Revenue ₹3.55,931 crore ₹2.22.113 crore ₹1.41.036 crore
Salary ₹1,99,368 crore ₹1,19,527 crore ₹78,245 crore
Net profit ₹71,011 crore ₹41,569 crore ₹23,093 crore

Note: Figures cumulative for FY22 and FY21

Recession and high turnover – a double whammy for IT majors

As talks about a recession in the US and Europe gain momentum, these IT companies are already under pressure. The stress from the economic slowdown in the US and Europe is reflected in the FY23 earnings expectations of these IT companies.

An economic slowdown in the US may not be so bad for Indian IT majors. Slower sales growth could slow wage growth and also slow turnover, experts say.

“Indian IT companies derive a lion’s share of their revenue from the US and Europe. Both regions face looming macro pressures in the form of some of the highest inflationary pressures and a slowdown in GDP growth,” said a Motilal Oswal report.

After revenue growth of 19% in FY22, India’s IT sector is moving into two years of moderation, according to a report from Crisil.

“Sales growth is expected to moderate to 12-13% this fiscal year and 9-10% in the next. [due to] an expected tightening of working capital expenditure due to inflationary headwinds,” the report said.

Also read:

Explained: US Fed rate hikes, quantitative tightening and its impact on India

After two years of huge profits and mind-boggling salary increases, TCS, Infosys and Wipro – along with their employees – are bracing for a slowdown. Concerns about a recession in the US and Europe – the key markets for Indian IT giants – have forced Indian IT companies to remain cautious going forward. Analysts say the December quarter could be the “inflection point” in terms of wages and attrition.


“An economic slowdown in the US and the EU could also be the inflection point for a slowdown in wage growth and turnover,” Dhananjay Sinha, chief of strategy research and chief economist at JM Financial, told https://londonbusinessblog.com/ India.

Attrition remains high – another source of margin stress

Attrition remains high – Infosys has been hardest hit with a 28.4% churn in Q1 FY23, research firms suggest margins will also continue to be under pressure.

“Companies had lowered their margin guidelines at the start of FY23, but we believe continued pressure from high turnover is likely to result in margin declines at the lower end of the guideline,” according to a report from ICICI Securities.

Wage increases and exhaustion rates could fall in December

Sinha explained that wage increases and employee turnover could decline simultaneously in the December quarter this year. The cooling of wages in the IT sector could also help solve the outage headache for IT companies, he said. With startups also facing funding challenges, there may be fewer exit routes for IT managers.

Within the industry, Sinha said Infosys could lead the pack as the decision to cut variable compensation to 70% has shown it is poised to contain costs. Media reports suggested that Wipro was delaying payouts for certain employee categories, suggesting companies are beginning to feel the pressure.

In contrast, TCS rolled out 100% variable reward days after Infosys.

US recession could cool IT sector churn along with revenues
HCL Tech Has Been Most Conservative With Its Employee Wageshttps://londonbusinessblog.com/ India / Bloom

An economic slowdown in the US is already showing signs of spillover in Big Tech revenue – Amazon Web Services, Microsoft Azure and Google Cloud, the world’s top cloud platforms, reported a 7% drop in revenue.

This could have a direct impact on TCS, Infosys and Wipro – media reports say that the revenues of these IT companies could be impacted by up to 33%.

“A weakening macro environment could translate into lower IT spending and slower growth for Indian IT companies,” said a report by Motilal Oswal.

ALSO SEE:

IBC cases still below FY20 levels – India Inc ‘comfortably placed’ according to report

The Credit Profiles of India Inc. improving as earnings growth exceed debt: S&P

Mutual funds fuel up on financial services and retail stocks

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article

Ian is expected to make landfall again as a hurricane, this time in South Carolina.

North Carolina and South Carolina were on alert Thursday as Ian headed for them after cutting a path of destruction through Florida and regaining...

Binance Founder Changpeng ‘CZ’ Zhao Shares His Vision of Web3 Capabilities at TC Sessions: Crypto • londonbusinessblog.com

When it comes to the decentralized world of crypto, there are few single entities that are bigger or hold more weight in the industry...

Limit reached – Join the EU Startups CLUB

€147/quarter This option is ideal for companies and investors who want to keep up to date with Europe's most promising startups, have full access...

Autodesk and Epic Games Bring Architecture Tools Immersion

While Autodesk architecture software like Revit is capable of creating 3D design plans, the collaboration introduces easy-to-use tools for designers, with features typically more...

What Bruce Lee can teach us about the benefits of conflict

Opinions expressed by londonbusinessblog.com contributors are their own. Can business leaders argue that employees are their greatest asset without providing ongoing forums for open exchange...