India's famed multi-billion dollar information technology (IT) industry has been facing challenging times over the past 6-12 months with top-notch IT companies already facing earnings pressures in recent quarters due to tough business environment prevailing in their most lucrative US and European markets.
With changing business dynamics of the global IT sector, Indian companies, too, are gearing up for more challenging times ahead. Already, the sector has witnessed job losses in recent times with analysts fearing more retrenchment in coming days due to concerns of subdued global IT spending, proposed curbs on H1-B visas in the US and increased focus on automation, Not just that, software employees are also facing the prospects of a possible delay in their annual wage revision.
In a move aimed at boosting its margin, software firm Tech Mahindra has put on hold appraisals of its employees having experience of more than six years.
These employees mainly the team leaders and above were conveyed about the suspension of their appraisal through a webinar by its chief operating officer L Ravichandran, the Economic Times report said.
These employees may have to wait for at least two more quarters before the management will let them know on when to expect a change in their salaries.
“We thought the wage increases would be very bad but we did not expect this. At least there are no large-scale layoffs so far. That was also a worry,” the ET report said quoting a Tech Mahindra employee.
Although, the management confirmed the news of delay in appraisal, but said the decision was nothing to do with the performance in the third quarter.
Recently, the company reported a 31.3 percent jump in sequential net profit on a consolidated basis to Rs 845 crore in the quarter ended December 2016, mainly on the back of higher revenue & other income, and lower tax cost.
Just last month, Infosys admitted to have released over 9,000 employees in 2016, with the company's HR head asserting that recruitment has fallen sharply in the wake of automation, a report said.
As seen in its falling head count numbers, Infosys hired just 5,700 employees during the first 9 months of this fiscal, sharply down from 17,000 in the last year, thus reflecting a fall in its total staff strength in the December quarter.
India's IT firms are already dealing with changing nature of the business in global arena. While the banking and financial services industry and telecom formed a major part of their overall revenues, segments like healthcare and retail are likely to be future growth drivers, Mint report said.
Foreign companies already have a strong presence here; Indian companies will have to invest more and play catch-up. It also shows in the fundamental nature of the services demanded, the Mint report said.
Not just these segments alone, the IT sector is also grappling with changing business dynamics such as a shift to automation, cloud, artificial intelligence and data analytics where Indian IT firms are lagging against their global peers.
Further, the latest threat emanating from US President Donald's Trump's decision to put curbs on H1-B visas issued to foreign nationals has already made Indian IT companies jittery, which fear cost escalation and a drag on their margins.
To overcome the challenges, Infosys co-founder N R Narayana Murthy last week said Indian software companies need to stop sending people on H1-B visas and focus on local hiring in the US.
The recent introduction of a US bill (Lofgren Bill) that proposes to double the minimum wages of H-1B visa holders to $130,000 from $60,000 has made the industry worried.
"I think even if the executive order comes, we should look at it more as opportunity for Indian companies to become more multi-cultural than we have been, rather than looking at it as a lacuna," Murthy said.
However, a recent Firstpost report, after speaking to some industry experts, showed that NR Narayana Murthy's suggestion that Indian companies should start hiring local hands as a solution may not be a workable one.
“The dependency of US organisations on H1-B is very high. You cannot call Indian companies names simply because the US companies too are benefiting from Indian companies and their Indian employees working on US soil,” Firstpost report said quoting Sanchit Vir Gogia - CEO, Greyhound Research.
A Nasscom report says that the industry pays equal wages to US nationals as well as Indians on H1-B visas. For instance, in 2013, while a US citizen was paid about $81,447 a year, an H1-B visa holder was paid $81,022, with an additional $15,000 on visa and ticket costs for the individual and his spouse/family.
"We need to assess possibilities of any adverse legislative action derailing client decision making on projects starts/awards. Additionally this could levy pressure on valuation multiples (and limit any prospects of valuation rerating) in the near term as the street remains apprehensive of likely impact on business/earnings from any action on this front while we believe the new US President’s stance within days of taking charge validates such concerns. Adverse H1B visa reforms could accentuate the structural challenges for the sector as a whole," brokerage firm Emkay Global Financial Services said in a note to its clients.
Updated Date: Feb 06, 2017 17:37 PM