India’s IT services firms tighten their wage belts. But are they getting fitter?

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Subscribe to enjoy similar stories. India’s top information technology services companies managed to keep a tight control over people costs in the September quarter even as global capability centres—the India-based IT wings of multinational companies—emerged as attractive alternatives for their employees. Unperturbed, IT services companies are replacing their middle and senior executives with junior employees and investing in upskilling them—which accounts for 5-7% of employee costs.

Human resources executives at these firms caution that the US election, the West Asian conflict, and the upcoming holiday season in key overseas markets will mean fewer recruitments in the next few months. Wages swallow up a large share of the revenues of India’s IT services companies, which even keep a number of employees on standby to be deployed on new projects. But in the current prolonged IT slowdown, companies have been forced to let go of employees not on a project—the surest sign of distress in the sector.

While the lower employee costs will help improve margins, it signals that the situation may not immediately improve. Three of India’s top IT services firms—Tata Consultancy Services Ltd, Infosys Ltd,and HCL Technologies Ltd—saw a decline in employee costs as a share of revenue in the financial second quarter, shows a Mint analysis of company results. Wipro Ltd stood out as the exception, showing a marginal increase in wage costs to 60.4% of revenue in the September quarter, from 60.2% in the April-June period.