Informist, Friday, Aug. 1, 2025

By Anjana Therese Antony

MUMBAI – Various narratives are taking shape about what's on the cards for Indian information technology companies after industry behemoth Tata Consultancy Services Ltd. announced it will lay off about 2% of its middle- and senior-level employees. That this will boost the company's profitability and other IT players will probably follow this trend are concerns for the market, but analysts do not seem to be too worried about any spillover impact.

TCS' decision to let go of around 12,000 employees is not seen as a major negative, particularly as a "good chunk of them" were a part of the Bharat Sanchar Nigam Ltd. deal that was recently completed. "If you had seen TCS' software equipment cost and their third-party cost, they had also gone up during the peak execution of this deal. So now they are just realigning all the employees to the current projects that they have," an IT analyst at a domestic broking firm said. While a similar trend can be seen in the sector due to the gap in skill sets, the magnitude will probably not be as much as TCS, the analyst added.

In May 2023, TCS had won a fourth-generation rollout project from BSNL for INR 150 billion. This was a large-scale project for which it had to incur huge third-party expenses and it hurt the company's margins. The completion of the deal in the June quarter is expected to ease some of this pressure going forward.

TCS is India's largest IT company in terms of revenue and market capitalisation while Infosys Ltd. is the second-biggest player, followed by HCL Technologies Ltd. and Wipro Ltd. In 2023-24 (Apr-Mar), employee benefit expenses of TCS had risen by INR 126 billion from the previous year, which was 10 times the rise of around INR 12 billion seen by Wipro Ltd., three times the rise of INR 43 billion of Infosys, and almost two times the INR 72-billion increase of HCL Tech. This increase was due to the additional hiring done for the BSNL project, analysts said. Hence, analysts do not see an emerging trend of more staff cuts across the industry.

Brokerage firm Jefferies has a concern, but a different one. The broking firm said the reduction in TCS' workforce may lead to near-term execution slippages and higher attrition in the long-term for the company. Other IT majors, who are unable to gain market share, may therefore resort to layoffs, the brokerage said.

TCS' decision to let go of some of its staff is also attributed to the possible mismatch in employees' skill set. "Probably, those employees were not getting deployed on certain projects, maybe, because they were not upskilling themselves," Abhishek Kumar, equity research analyst - IT at JM Financial, said. "This is specific to TCS, but one trend is clear; that employees need to upskill themselves as technology is shifting very fast," he added.

IT companies deliberately hire more employees than they actually need and some of them are kept on the bench so that they can be deployed when the need arises. However, some employees are not deployable even when there is demand as these may not have the required skill for a particular project. This employee cost then becomes a drag on the company's margins and if this is the case with other companies, they might also consider layoffs, Kumar said. Even when there is attrition, IT companies constantly have a bench which can be trained for a particular client or a particular industry and can be deployed very quickly, he added.

For context, TCS' consolidated operating margin for the June quarter was 24.5%, up 130 basis points from the corresponding quarter two years ago when it had won the BSNL deal. TCS' employee costs rose just 4% in 2024-25 (Apr-Mar), significantly lower than the 10% increase in FY24 when the company had bagged the BSNL deal.

As on Jun. 30, TCS' total employee count was 613,069, down 0.4% from 615,318 two years ago. If one looks at the company's revenue per employee, the metric rose over 7% to INR 1.03 million from INR 965,850 per employee two years ago.

Employee utilisation of most IT companies, including large-cap and mid-cap players, was more than 80% in FY23 and FY24 and continues to be above this level. TCS and HCL Tech had not provided the data for this parameter. For the quarter ended March 2024, Infosys' employee utilisation was 82%, Wipro's was 84.8%, and that of the fifth-largest IT player Tech Mahindra Ltd. was 86.4%.

TCS Chief Executive Officer and Managing Director K. Krithivasan told Moneycontrol the layoff decision is not expected to disrupt order deliveries to clients. But experts do not seem to buy this comment. "No matter how much TCS highlights that it would not affect their delivery, we believe that to some extent it will," the IT analyst from the domestic broking firm said. "It will take a quarter or two to settle down and for the rest of the workforce to get adjusted to this new environment." This analyst has cut TCS' margin estimate for FY26 and FY27 by 30 basis points each.

Meanwhile, Infosys has said it is not considering "workforce rationalization" and is instead going ahead with its hiring plans. "We had a strong recruitment in the first quarter, over 17,000 employees, both lateral and from colleges, and our plan for the full year is to recruit 20,000 college graduates and that continues," Chief Executive Officer Salil Parekh told CNBC-TV18.

Infosys management had last week said it has a rigorous process for hiring college graduates. "They then go through a very focused foundational training at the campus," it had said in a press conference post-earnings announcement. Those who join the company get three shots to meeting its assessment standards. If they don't meet the standards after the third attempt, "they don't continue with the company".

VALUATION, EARNINGS

The market was not happy with TCS' layoff announcement. The pessimism was reflected in the share prices of TCS as well as some of its industry peers this week. Shares of Wipro fell over 6% this week, TCS declined over 4%, and Infosys and HCL Technologies were down around 3?ch.

However, experts believe valuations are at comfortable levels, particularly after the correction that has been underway for a month. "Valuations are very reasonable because most of the stocks have corrected from their recent peaks...The market is likely not expecting a quick rebound that reflects in the 10?ll in the Nifty IT over the last one month," Kumar of JM Financial said.

In the case of mid-cap stocks, he believes valuations were slightly expensive, which is why these stocks fell despite stronger earnings growth compared to their large-cap peers. While the earnings growth will continue to be better for mid-caps, the scope of further expansion in valuations is unlikely, Kumar said. End

Edited by Ashish Shirke

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