Indian techies looking to change jobs in 2020 — business is getting tighter for the likes of Infosys, TCS, HCL Tech and their peers

• Earnings of Indian tech companies are slowing down but the share prices are still hot!
  
• The stock of Infosys, TCS, HCL Tech, and Tech Mahindra have rallied while earnings estimates have been cut
• The margins of these software exporters have shrank despite a favourable exchange rate against the US dollar.
  

Earnings of Indian tech companies are slowing down but the share prices are still hot! The stock of Infosys, TCS, HCL Tech, and Tech Mahindra have rallied while earnings estimates have been cut.

The business from banking and retail clients — which make for nearly half of the revenue for Indian IT firms — have slowed down. The margins of these software exporters have shrank despite a favourable exchange rate against the US dollar. But the stocks have gained as much as 18% this year.


The financial performance of these companies is not going to improve in a hurry. Foreign investors know this, which is why they pulled out the maximum chunk of their money in India from this sector.

Yet local investors are buying into these stocks and the managements' narrative that the growth in digital businesses will offset the weak demand for legacy services — that has led to the sharp rise in stock prices when the growth is getting capped.


Meanwhile, the EBIT (earnings before interest and tax) margins for the top four IT companies have fallen by 350 bps to 21.7% over the last 5 years until the end of September 2019, according to a recent Ambit report. This is despite a 16% fall in the value of rupee, which should ideally boost the margin because these firms make most of their revenue in dollars. The pain is far from over and the margin could fall another 120 basis points by the end of financial year ending March 2022, according to Ambit.

The pain for TCS is getting worse

Tata Consultancy Services (TCS) is likely to end 2019 on a sombre note. The software exporter owned by the Tata Group is likely to clock a revenue growth of less than 1% in constant currency terms between October to December 2019 quarter compared to three months ago, according to Centrum, a Mumbai-based broking house.

Banking and retail verticals have decelerated further, the management told analysts at Centrum. The two verticals account for nearly 46% of the technology major's revenue. The slowdown could affect the full-year earnings too— Centrum expects the growth for financial year ending March 2020 to 8.5% before accounting for exchange rate changes. This would be sharply slower than the 11.4% the company clocked in the previous financial year.

Infosys may be relatively better off

The expected slowdown for TCS is coming at a time when Infosys is looking to reclaim the coveted pole position among India's IT stocks. The company has reportedly stepped up efforts to bag more deals, and bigger ones, with a special focus on government contracts in the Asia-Pacific region. Further, analysts at HDFC Securities recently said that Infosys could make $100 million to $150 million just from cost-saving initiatives.

However, these are just efforts for which results are yet to be seen. In the mean time, as business gets tighter for the technology majors, they are looking to reduce cost by hiring more freshers. They are trying to bring costs down by hiring more people straight out of engineering colleges, and reducing the strength higher up in the corporate hierarchy.

In the first 6 months of the year, the five tech companies named above hired over 64,000 freshers. TCS alone picked up 26,500 employees, and a large part of it has been at the bottom of the pyramid. That's not great news for people looking to spike their salary by changing jobs.

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