Layoffs imminent in India’s IT sector? Analysts say Accenture’s job cuts are a “blueprint.”

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  • The looming fear of technology dismissed in India rose again afterwards accent announced 19,000 job cuts on Thursday.
  • Accenture’s revenue is often seen as an indicator of the performance of the Indian IT sector.
  • Indian IT companies halted hiring in the second quarter, with hiring falling by 96% compared to the previous 7 quarters.

Despite many start-ups laying off workers since last year, India’s IT sector has remained resilient so far. However, the recent announcement by global IT giant Accenture that it will cut 19,000 jobs has reignited some of the fear.

“What we’ve seen in recent quarters is a focus on costs with shorter payback times. Everyone wants to be more resilient and [have] lower costs,” said Julie Sweet, CEO of Accenture in a post-earnings conference call.

Accenture has opted for cutbacks to increase resilience. “We try to save structural costs, so that we are in a better position. We try to reduce costs by increasing efficiency,” added Sweet.

Even as Silicon Valley’s tech giants cut thousands of jobs, India’s top IT companies gave no such directions. Yet in recent months they have suddenly put the brakes on hiring. According to an analysis by http://gotechbusiness.com/ India, the number of hirings fell by 96% in the December quarter compared to the previous seven quarters.

Of the four major IT companies, TCS and Wipro even reported a decrease in their headcount during the quarter.

Going forward, Indian IT companies could view Accenture’s layoffs as a “blueprint,” says JM Financial.

“We see such measures as necessary for Indian IT players, as well as slower growth and falling inflation, making utilization and pyramid correction difficult levers to use,” said a report from JM Financial.

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Other levers available to optimize costs

Apurva Prasad, vice president of institutional equity research (IT sector) at HDFC Securities, told http://gotechbusiness.com/ India that there are other levers rather than layoffs that Indian IT companies can use to achieve cost optimization.

“There are multiple levers that Indian IT companies can use to achieve cost optimization – this includes improving usage ratios, better pricing of existing accounts and vendor consolidation,” said Prasad.

For context, Accenture’s occupancy rate was 91%, which is significantly higher than companies want infosys, which reported an occupancy rate of 81.7% in the December quarter. In such a scenario, it would be better to put the bank to work, Prasad explained.

In Accenture’s case, global brokerage Jefferies said layoffs are a result of overhiring during the pandemic, while Bank of America analysts underlined that the job boom was made possible by cheap capital.

“The reduction in headcount is a result of overhiring during the pandemic and slower growth prospects than originally forecast,” Jefferies said in a note.

With growth prospects declining and interest rates rising sharply, companies are realigning their workforces with current macroeconomic realities.

Banking troubles put a strain on BFSI spending

The banking, financial services and insurance (BFSI) segment, one of the main sources of revenue for Indian IT companies, has seen discretionary spending cuts.

The troubles at four banks in 11 days, including Silicon Valley Bank and Credit Suisse, will prompt BFSI clients to “focus on present survival rather than investing in future survival,” according to a report from Kotak Institutional Equities.

“Surviving the current crisis and ensuring adequate liquidity and capital adequacy will become the main focus, which will lead to spending caution,” the brokerage said, adding that the tech budgets outlined at the beginning of the year would can be weakened.

It added that the deteriorating macroeconomic environment could lead to further polarization of growth between leaders and laggards of India’s IT sector.

“TCS and Infosys are better positioned under Tier 1 IT. Cognizant and Wipro are vulnerable under Tier 1, higher exposure to advisory increases vulnerability to the latter,” the Kotak report added.

Overall, cost optimization has now become a theme in the deteriorating macroeconomic environment, Prasad explains. It remains to be seen how Indian IT companies achieve this, hopefully without resorting to budget cuts.

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