Wipro lay-offs not surprising, more IT firms could rein in hiring: Here's why

The information technology (IT) industry employed 3.9 million in 2016/17, clocking an annual headcount growth of 5 per cent, as per the industry lobby Nasscom. The figure was 6 per cent in the previous fiscal. The low, single digit employee growth rates signals the industry's continued focus on productivity and automation. Indeed, IT companies are also bracing up for curbs on worker visa norms by various countries like the US and Australia. Now in this backdrop, the news of lay-offs at India's third largest IT services exporter Wipro, does not comes as a surprise.     

The problems of the IT industry could intensify as global advisory firm McKinsey & Company in a recent report pointed out that nearly half of the workforce in the IT services firms will be irrelevant over the next 3-4 years. The firm also believes that the bigger challenge ahead for the industry will be to retrain 50-60 per cent of the workforce due to significant shift in technologies.

Here's a reality check.

According to various media reports, Wipro has decided to lay-off around 500 employees as a part of the appraisal process, which the company has termed as a part of plan to align its workforce with business objectives. The company has not filed its fourth quarter results which are awaited next week. However, according to the latest data available for Q3FY17, the company's total headcount stood at 1, 79,129, a net addition of 4,891 over the previous quarter. The net addition of headcount in the second quarter of 2016/17 was 375 compared to Q1FY17. The company saw negative growth in its IT services revenues on a sequential basis over the last two quarters -- -0.7 per cent and -0.8 per cent respectively.

At Infosys, growth in consolidated revenues in dollar terms decelerated to 7.4 per cent in FY17 from 9.1 per cent in FY16. The company's operating margins have been declining since 2014/15 from 25.9 per cent to 24.7 per cent currently. It made a net employee addition of just 6,320 employees in FY17 to reach a total headcount of 200,364, compared to a significant net employee addition of 17,857 and 15,782 in the previous two fiscals.

In the case of Tata Consultancy Services (TCS), the current headcount stands at 3, 87,223 and the employee addition over the last two fiscals has been relatively stable.  It made a net employee addition of 33,380 in FY17 marginally lower than 34,187 employees in FY16. On financial parameters, the company's operating margins have declined from 26.5 per cent to 25.7 per cent in the last two fiscals. Its revenues (in dollar terms) too, saw some moderations to 6.2 per cent from 7.1 per cent, year-on-year, over the period.
    
The macro picture does suggest that IT companies will rein in hiring and may even consider layoffs to boost margins. It may well be the new normal.