IT sector set to hit slow lane in FY24

Indian IT industry is staring at a slowdown with the worsening of the demand environment. The fourth quarter performance of both Tata Consultancy Services (TCS) and Infosys indicate that revenue growth is likely to be tepid at least for the next two quarters. The former posted a 0.6 per cent growth in revenue on sequential basis during Q4, while Infosys, surprising the market, saw 3.2 per cent decline in its top line growth rate during this period. Neither inspires confidence as regards growth coming back in the first half of the ongoing financial year.

Both companies flagged up concerns regarding delay in decision-making, project cancellation and ramp downs among others. Interestingly, the two showed healthy deal pipeline. Despite this, revenue accretion remained low. On that count, high TCV (total contract value) can no longer guarantee addition to revenues. This is because clients are cautious about executing projects under their long-term commitment. It reflects not only cost pressure but also holding back some of the digital transformation initiatives.

Against this backdrop, the performance of other firms is likely to be on similar lines. Meanwhile, the stock market has reacted, factoring in the slowdown. Infosys share price fell close to 12 per cent in the last five days post-announcement of its results. TCS has fallen four per cent, while LTIMindtree has lost more than 10 per cent during this period. Going ahead, optimism around NSE Nifty index is low. Moreover, divergence in performance has started to emerge among both the Indian and global players. Among TCS and Infosys, the latter has been the glimmer compared to TCS. Both were worse than their global peer, Accenture. The world's biggest IT firm by revenue has shown subdued performance but its performance was a lot better than the two Indian firms. While consulting business of Accenture was showing slowdown, services side of business were going strong with less client-specific issues.

All-in-all, the phenomenon of rising tide lifts all boats is now over. Hereafter, one should expect significant difference in performance and commentary of companies. These factors show that engineers may have a tough time in 2023. After a record hiring in 2021 and 2022, it has not only fallen but many companies started slashing their workforce during January-March with freshers being in a tight spot. Many of the offers rolled out by Indian IT firms have not been honoured yet. A majority of freshers are in a limbo in the absence of commitment from potential employers. As the pipeline dries up, fresher hiring will see the biggest hit in 2023. Already some companies are asking freshers to join for low salaries or raising the bar to reduce their numbers. This does augur well for engineering colleges. Not only freshers but also lateral entrants are facing rising job pressure on the back of more work. Sources in the know said silent firing is underway in domestic IT firms, in the guise of voluntary attrition. Overall, FY24 will be a year of caution and slow growth for the Indian IT industry.