Layoffs that are shorter than those extended last year, owing to a sluggish demand scenario and the falling rupee, are anticipated to safeguard IT businesses’ profits during the October–December period, which is often regarded as a poorer quarter. Layoffs were prolonged last year due to a depressed demand situation caused by poor discretionary spending. IT companies, however, predict that this year will see a usual span. Additionally, the devaluation of the rupee would operate as a tailwind for margins of 30 to 50 basis points, according to an analyst from a domestic brokerage business.
Layoffs, a common issue from October to December, usually cause revenue disruptions for IT companies as clients temporarily halt work. It happens when customers halt operations around holidays like Christmas and New Year’s, which affects domestic IT companies that keep paying staff wages even if they have yet to send out furlough invoices to clients. “We experienced an unusual number of layoffs last year. Layoffs will return to normal levels this year. In a previous conversation, LTIMindtree had informed Fe that the scenario signals better planning and customer stability, adding, “We definitely don’t anticipate the same level of Layoffs as last year, so that it will be positive for us.”
Infosys has expressed a similar opinion. Following the company’s Q2 results, chief financial officer Jayesh Sanghrajka stated, “We have baked in the regular Layoffs (in the guidance) that we have seen over the past few years.” Furthermore, as the US accounts for between 50 and 60 per cent of IT companies’ revenue, the rupee’s decline vs the US dollar has become a major tailwind for these businesses.
According to Pareekh Jain, CEO of Pareekh Consulting and EIIRTrend, layoffs won’t worsen this year. The weakening of the rupee will undoubtedly be beneficial. Generally, for every 1% depreciation of the rupee, revenue increases by 0.5%, and profit increases by 1.5%. Since currency depreciation mitigates the effects of layoffs, this quarter should be better. So far in Q3, the rupee has lost around 92 paise vs the US dollar. This week, it fell to an all-time low of 84.88.
Additionally, improved macroeconomic conditions are facilitating a more favourable environment for IT companies compared to the previous year. “The impact of layoffs is lessened now that the external climate is generally better. Furthermore, according to Jain, customers with unfinished budgets toward the end of the year frequently incur extra expenditures in November and December.
Analysts also cited the declining rupee and unbroken wagers on the Federal Reserve lowering interest rates later this month following in-line inflation figures as reasons for the recent spike in IT stock prices. This week, the National Stock Exchange’s Nifty IT index hit a new high, indicating investors’ perceptions of the industry improved.
Infosys raised its fiscal 2025 projection from 3% to 4% to 3.75% to 4.5%, reflecting the volume improvement in the banking, financial services, and insurance sectors and the relaxation of pressure on discretionary expenditures. According to Sanghrajka, Infosys’s CFO, “a number of factors, beginning with Q2 performance and increased volumes in financial services, have led to a guidance change.” However, industry watchers continue to exercise caution since client discretionary spending is still not completely stable.
