Message to software engineers: Think twice before quitting this year

Their concern isn’t even the traditionally slow December quarter or the current fiscal year ending in March. The more problematic time frame may be the year starting in April. Noting that the epicenter of the pessimism is Europe, analysts are drawing comparisons with the region’s 2012 sovereign-debt crisis. The repetition of that experience can make recovery a shallow, long drawn-out affair.

Recession seems inevitable, however when it comes to measuring its extent, Bye The consultancy’s financial results on Monday provided some new clues. An extension of a decade-long partnership with British retailing client Marks & Spencer Group Plc and a deal with US biopharma firm Gilead Sciences Inc appear to be in the making for jitters in continental Europe. India’s most valuable software exporter posted revenue of $7.08 billion, a growth of 8.4% over the December 2021 quarter. net Income of $1.3 billion was virtually unchanged from a year ago.

“We’ve gone into December with everyone being cautious,” the chief executive said. Rajesh Gopinathan Said in the post-earnings press conference. “But our view is that this caution has a different color to the markets.”

Still, the Mumbai-based company is not taking any chances. It reduced its employee base by a little over 2,000, the first reduction in headcount since June 2020. From around 23% six months ago, TCS has been able to expand its operating margin to 24.5%. But profitability is only part of the story; Investors also need a more definitive read on the overall order book. for both TCS and its rival in Bengaluru InfosysAnalysts are projecting roughly 10% growth in dollar revenue in the coming fiscal year.

He is somewhat optimistic. If the coming recession is anything like the 2008 financial crisis or the pandemic, it’s reasonable to expect this kind of rapid turnaround, which opened the floodgates for new orders. However, if a more apt comparison is the European malaise of 2012, it may take much longer for customers to be reassured again.

Hence, investors will be paying close attention when Infosys comes out with its report on Thursday. The No. 2 Indian player so badly underestimated the 2012 meltdown and its impact on European banking customers that it ended its quarterly revenue guidance in July of that year after repeatedly failing to deliver on its promises. done.

“Even during the Eurozone crisis of 2012, consensus estimates consistently underestimated Infosys’ initial guidance, which ultimately undermined growth,” the Mumbai-based brokerage said. JM Financial Institutional Securities Ltd wrote in a note to clients last month. “A similar trend could mean a gradual downward revision in earnings for a longer period.”

An added complication this time is pandemic-era staffing. Starting June 2020, TCS added 172,000 people in the nine quarters as clients rush to digitize supply chains. That demand is now back at a more normal pace. At the same time, though, corporate customers haven’t begun to envision big cost-cutting IT projects — everyone is in a wait-and-see position. “Unlike previous years when we had to fight for talent, we are seeing a sharp decline in recruitment,” Sunil Chemmankotil, CEO of temp staffing firm TeamLease Digital, told The Economic Times recently.

Putting the brakes hard on recruitment helps in two ways. One, it shores up existing margins. Second, it reduces employee layoffs by lowering employee salary expectations – which was uncomfortably high for TCS at 21.3% last quarter. IT outsourcing companies generate 70% of Indian code-writing jobs. The other major employer is the local startup industry, which is laying off a large number of people due to lack of funding. The overall message for software engineers is clear: It may be unwise to quit this year.

But even as profitability held steady for Indian software exporters, aided by a tight cap on staff costs and a 10% decline. Rupee Against the dollar over the past year, the order book could falter if European customers postpone or delay large IT projects. A repeat of 2012 is the bigger worry now.

This column does not necessarily reflect the views of the Editorial Board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Prior to this, he worked for Reuters, The Straits Times and Bloomberg News.

The text of this story is published from a wire agency feed without any modification. Only the headline has been changed.