TCS: Layoffs are a low-hanging fruit
In the absence of clear growth drivers, the layoffs announcement at India's largest IT services company failed to enthuse investors
The TCS layoffs will target 12,000 mid- and senior-level employees, or 2 percent of its workforce.
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News of layoffs at TCS, India’s largest IT services company, sent a collective chill down the spines of both employees and investors.
Foremost on their minds was the thought that, after three years of tepid growth, low or non-existent wage hikes and a slow pace of hiring, companies may have to resort to trimming their workforce in order to maintain profitability as well as prepare for an era that demands a vastly different set of skills. The TCS layoffs will target 12,000 mid- and senior-level employees, or 2 percent of its workforce.
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Still, if TCS believed that investors would be enthused with this response, the Day 1 reaction showed that markets value growing, agile businesses more than shrinking, floundering companies. According to analysts Bernstein, this was the third action in the last three months that pointed to the company focusing on conserving margins. In April, it deferred wage hikes and, in June, it restricted the number of non-billable days for employees to 35 in a year.
The layoffs point to a deeper malaise in IT companies. Over the past year, the Nifty IT Index is down 13 percent, compared to 0.6 percent for the Nifty. Among IT companies, it is the frontline ones that have borne the brunt, with TCS down 30 percent, Infosys 19 percent, Wipro 5 percent and HCL Tech 10 percent. A key reason for this is uncertainty over future growth prospects and the terminal value of these businesses. Reducing hiring, laying off people and deferring wage hikes are unlikely to give investors a clear picture on growth.
While AI is often pointed to as a threat to entry-level jobs, a significant issue has been the lack of agility these new companies have shown in dealing with clients.
