In a strategic move aimed at managing costs and sustaining profitability, several major Indian information technology (IT) companies have decided to defer their wage hikes to the third quarter of FY25.
Among the firms making this shift are Infosys, HCLTech, LTIMindtree, and L&T Tech Services.
Wage Hikes Shift: Context
The global demand environment for IT services has been sluggish, marked by delayed client budgets, weak discretionary spending, and macroeconomic uncertainties.
As a result, companies are facing increased pressure to optimize costs while maintaining operational efficiency. Against this backdrop, Infosys, HCLTech, LTIMindtree, and L&T Tech Services have recalibrated their wage hike timelines.
Wage hikes, a customary practice in the IT industry, are typically implemented earlier in the fiscal year. However, this year’s delay reflects the companies’ cautious approach.
By shifting the wage hikes to Q3 FY25, these organizations aim to strike a balance between retaining talent and managing their bottom line. The decision underscores the importance of cost management in an unpredictable business landscape.
Margin Expectations
Brokerage firms have varying predictions regarding the impact on margins. Jefferies suggest aggregate margins across the industry may inch up by 25 basis points (bps) sequentially. HCLTech and Tech Mahindra are Expected to report a 20-110 bps margin expansion.
Tata Consultancy Services (TCS) and Coforge are likely to report a 30-110 bps margin contraction.
Infosys saw a margin improvement by 10 bps to 21.2 percent quarter-on-quarter (QoQ). HCLTech is expected to report a substantial 120 bps margin improvement to 18.3 percent, sequentially.
Wage Hikes Shift and Workforce Reductions?
Beyond wage hikes, some of these companies are also exploring targeted workforce reductions. Specifically, they are considering trimming specific experience segments, such as employees with 5-10 years or 15-20 years of experience.
While this approach aims to optimize costs, it also raises questions about employee morale and long-term retention. As the IT sector navigates these challenges, the focus remains on balancing financial prudence with talent retention.
The delayed wage hikes signal a cautious outlook, but companies must also ensure that their workforce remains motivated and committed.
The upcoming quarter will be crucial for assessing the impact on margins and understanding how these decisions play out in the competitive landscape.
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