Layoffs coming to the Indian IT sector? Analysts say Accenture’s jobs cuts offers a ‘blueprint’
- The looming fear of tech
layoffsin India rose again, after Accentureannounced 19,000 job cuts on Thursday.
- Accenture’s earnings are often seen as an indicator of the Indian IT sector’s performance.
- Indian IT companies froze hiring in Q2, with hiring declining by 96% when compared to preceding 7 quarters.
AdvertisementIn spite of the many startups laying off employees since last year, the Indian IT sector has so far remained resilient. However, the recent announcement by global IT major Accenture that it will cut 19,000 jobs has brought back some of the fears again.
“What we have been seeing for the last several quarters is a focus on cost with shorter return time. Everyone wants to be more resilient and [have] lower costs,” said Julie Sweet, CEO, Accenture in a post-earnings conference call.
Accenture has opted for retrenchments to drive resilience. “We are trying to cut structural costs so that we are in a better position. We are trying to mitigate the cost by driving efficiency,” Sweet added.
Even as the big techs of Silicon Valley chopped thousands of jobs, top Indian IT companies gave no such indications. Yet, in the last few months, they have put sudden brakes on hiring. According to a Business Insider India analysis, hiring fell by 96% in the December quarter compared to the preceding seven quarters.
Out of the big four IT companies,
Going forward, Indian IT companies could look at Accenture’s layoffs as a ‘blueprint’, says JM Financial.
“We see such action as necessary for India IT players as well as a slower growth and falling inflation makes utilisation and pyramid correction difficult levers to pull,” said a report by JM Financial.
Other levers available to optimise costs
Apurva Prasad, vice president of institutional equity research (IT sector) at HDFC Securities told Business Insider India that there are other levers instead of layoffs which Indian IT companies can use to achieve cost optimisation.
“There are multiple levers that Indian IT companies can use to achieve cost optimisation – this includes improving utilization ratios, better pricing of existing accounts, and vendor consolidation,” said Prasad.
AdvertisementFor context, Accenture’s utilisation rate stood at 91%, which is significantly higher than companies like
In Accenture’s case, global brokerage Jefferies said layoffs are a result of over-hiring during the pandemic, while Bank of America’s analysts underlined that the rise in jobs was facilitated by cheap capital.
“Headcount reduction is a result of over-hiring during the pandemic and a slower growth outlook than originally forecasted,” Jefferies said in a note.
Now that growth prospects have tapered and interest rates have risen sharply, companies are realigning their headcounts to match the current macroeconomic realities.
Banking woes bring troubles to BFSI spends
AdvertisementThe banking, financial services and insurance (BFSI) segment, which is one of the major revenue sources for Indian IT companies, has seen a cutback in discretionary spendings.
The troubles at four banks in 11 days, including Silicon Valley Bank and Credit Suisse, will drive BFSI clients to “focus on current survival rather than investing for future survival,” said a report by Kotak Institutional Equities.
“Surviving the current crisis, and ensuring adequate liquidity and capital adequacy will emerge as the top focus, leading to prudence on spending,” the brokerage said, adding that tech budgets outlined at the beginning of the year could be toned down.
It added that the deteriorating macroeconomic environment could lead to further polarisation of growth between leaders and laggards of the Indian IT sector.
“TCS and Infosys are better positioned among Tier 1 IT. Cognizant and Wipro are vulnerable among Tier 1, higher consulting exposure increases vulnerability for the latter,” the Kotak report added.
AdvertisementOverall, cost optimisation has emerged as a theme now with deteriorating macroeconomic environment, Prasad explained. It remains to be seen how Indian IT companies achieve this, hopefully without resorting to retrenchments.
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