Information Technology (IT) firms are still in a tough spot as growth continues to be subdued for many quarters now. To tackle the situation, companies are considering cost-cutting approach.
Top Indian IT companies reported muted growth of between 0.2 percent and 2.2 percent in constant currency terms for the September quarter, Mint reported.
"Contribution from acquisition for companies such as Wipro, HCL Technologies and Tech Mahindra camouflaged the magnitude of slowdown. On organic, constant currency basis, tier-I IT companies will end up with 5-7 percent growth for FY18 (except Wipro will be lower at about 2 percent)," a Kotak Institutional Equities report stated.
This downturn in the growth cycle has sparked cost cutting in a substantial manner. IT companies are cutting costs by a sizeable margin, to achieve and beat analysts' earnings estimates, the report stated.
At the beginning of the calendar year 2017, analysts thought that this year will be different, with growth expected to revive in banking, financial services and insurance (BFSI) segment, however, things didn't turn up well.
An Exception being foreign IT firm Accenture, which registered substantial gains in key industries such as banking and financial services and retail. Further, in September, Accenture's growth in these segments was higher than the company's average growth rate in the quarter.
What makes matters worse for Indian IT companies is that pricing pressure has increased in traditional services, reported the business daily.
"In their bid to defend margins and improve efficiency, companies have taken up (employee) utilization by up to 400 and 600 bps (basis points) on q-o-q (quarter-on-quarter) and y-o-y (year-on-year) basis. The current utilization level of most Indian IT companies is close its peak", the Kotak report noted.
Other than cost reduction, layoffs in IT sector is another big concern. Recently, six Indian firms trimmed employee headcount by over 4,000.