Mumbai, Nov 5
As the IT industry faces one of its longest periods of financial headwinds, a historical analysis conducted by businessline shows that large-cap IT firms have been able to maintain stable margins over a period of five years. In the current economic paradigm, growth eludes IT companies, as they evaluate their operating models; however, IT firms have consistently delivered stable margins. According to data shared by CareEdge with businessline, IT firms auch as TCS, Infosys, and HCL Tech, have delivered margins in the range of 24-25 per cent; 21-23 per cent; and 22-24 per cent since FY19.
Even as IT firms faced a bump in margins in the latter half of FY22 following the pandemic, margins have consistently climbed to reach the levels at the beginning of FY19. Over the last year-and-a-half, IT firms have faced economic pressures, starting with the Russia-Ukraine war to the banking crisis in the US in the first half of 2023, and even now major economies such as the US and the UK flirt with recession. A period of consistent downturn has compelled these IT firms to trim their workforce and reduce hiring.
hiring by firms
businessline reported earlier that this fiscal year will look extremely difficult on the hiring front; however, through these headwinds firms have appeared to hold on to their margins.
Sanchit Vir Gogia, Chief Analyst, Founder & CEO of Greyhound Research, explained that IT firms have been able to maintain margins because they have been pretty dexterous in adopting new technologies. “Many levers have been used to manage back to back economic downturns. Indian IT firms have had a laser-sharp focus on the changing tech trends, and continue to streamline investments into products. IT firms have also better managed the unit economics, currency hedging is being done better to manage these situations. Moreover, they have set service centers nearer to client locations over the years and are hiring more locally.” According to Gogia, these factors have helped IT firms manage economic downturn.
However, experts continue to maintain that IT firms will have to change their operating models if they wish to grow. Companies such as TCS, and Infosys are seen as bulky organisations in need of trimming their bench. This fiscal year, all signs indicate that these IT firms hope to leverage technologies like AI to hire less and deliver projects using their existing bench strength. But experts also believe that IT firms also need to look into breaking their business units to operate more efficiently and strive for growth.
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Published on November 5, 2023
