Now IT begins to talk job cuts

The winter chill in order flows is leaving India’s IT giants quaking like an aspen leaf.
Meaning, job cuts may not be far away.

The CEOs of three of the four top IT services companies — Infosys Technologies, HCL Technologies and Tata Consultancy Services — drew a sobering picture of the country’s showpiece sector at the annual Nasscom Leadership Summit in Mumbai on Wednesday.

“Spends from existing customers has gone down,” Vineet Nayar, CEO of HCL, said at what’s a definitely more tempered summit this year.

His views were echoed by his peers from TCS and Infosys, S Ramadorai and Nandan Nilekani.“The disparity between revenues and headcounts is increasing,” Nayar said.

The IT and IT-enabled industries are expected to employ around 22.3 lakh people in India by March 31, up 12% from last fiscal. But Indian IT’s revenue growth has been lowered from 21-24% to 16-17% by industry body Nasscom a few days ago.

While none of the big companies except Satyam have so far laid off employees, the CEOs hinted that may change soon.

“There is no point in repeating that the tunnel is dark. But a majority of the clients are telling us that they are in trouble. ‘Caught in the headlights’ is the right expression,” Nayar said, answering questions from a panel.

Nilekani said many Infosys clients are delaying spending, leading to a slowdown in orders.
“They are not ready to make big investments and are conserving cash,” he said.

While none of the CEOs quantified the impact of the spending slowdown, Nayyar said discretionary IT spending, such as upgrades and expansions, has taken a big hit. “They [the customers] are not optimistic in the short term, they are not optimistic in the medium term and they are not optimistic about the long term,” he said, adding that the curtailment is impacting Indian IT firms, most which get a large chunk of their revenues from such ‘green field’ projects.

While Nayar was against downsizing to cope up with the slackening demand, Ramadorai of TCS was more blunt: “We can’t just say we will run the same way we used to.. We can’t have a role for an employee where it is not a business role. How long can you keep saying you have a social responsibility (to protect jobs)?” he asked.

Ramadorai clarified that any trimming of workforce would be done gradually through a performance-based system. Nilekani concurred, adding, “companies cannot keep ignoring the realities”. He, however, warned against damaging the long-term reputation of firm through lay-offs.

“We made 20,000 job offers for this year and we intend to maintain all of that,” he clarified.

Infosys has already introduced programmes such as paid sabbaticals to help ease the number of employees on its benches.

While none of the companies have actually seen revenues declining, analysts see it as a strong possibility in the coming two quarters.

Indeed, Wipro, the third largest player, has already warned that it is likely to see IT services revenues go down by around 5% on a sequential basis in the March quarter.

“There is a good chance of revenues starting to decline for all of them,” says Harit Shah, who tracks the sector for Mumbai-based Angel Broking. Shah, however, feels the companies are likely to take steps to prevent it from impacting their bottomlines to the same extent. “Even if the revenues decline, margins will not decline to that extent,” he said.

Nandan Nilekani said he believes Infosys has a lot of inefficiencies which have been overlooked so far and will be looking to eliminate them.

He also said the company is approaching the clients who are feeling the pinch with alternate business models, transfering more risk to itself. “Instead of billing on the basis of number of employees deployed, we are offering turn-key models,” he said.