TCS, Infosys, Wipro, and other Indian IT businesses are walking cautiously after two years of record profits and staggering salary increases as wages and a potential downturn in demand add to margin problems. For Indian IT majors, a US economic downturn might not be all that awful. According to experts, attrition and spiking labour expenses may benefit from a prospective slowdown.
The Indian IT industry is expected to slow down for two years after recording 19% revenue growth in FY22, according to a Crisil analysis.
Research companies predict that the margins will stay under pressure as long as attrition levels remain high. Infosys is the company that has been most negatively impacted, with an attrition rate of 28.4% in Q1 FY23.
By the December quarter of this year, wage increases and attrition rates may both begin to decline, according to Sinha. According to him, the problem of attrition for IT companies might potentially be resolved by the cooling off in pay across the IT sector.
There may be fewer exits for IT leaders because startups are also experiencing financial shortages.
“Indian IT companies source a lion’s share of their revenue from the US and Europe. Both these geographies face looming macro pressures in the form of one of the highest inflationary pressures and a slowdown in GDP growth,” said a Motilal Oswal report.
“Revenue growth is expected to moderate to 12-13% this fiscal and 9-10% in the next, [due to] an expected tightening in corporate capital spends because of inflationary headwinds,” the report stated.
According to Sinha, Infosys might be the market leader because of its decision to reduce variable compensation to 70%, which demonstrates its willingness to manage expenses. According to media reports, Wipro postponed payouts for some employee categories, indicating that businesses are starting to feel the squeeze.
The top three cloud platforms in the world, Amazon Web Services, Microsoft Azure, and Google Cloud, reported a 7% reduction in sales, indicating that a downturn in the US economy is already having an impact on Big Tech revenues. According to media sources, this might have a direct effect on TCS, Infosys, and Wipro. The revenues of major IT businesses could be damaged by up to 33%.