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IT industry struggles on delivery front as Covid-19 throws a spanner

Hiring by IT companies has not shown a negative trend yet
Last Updated 23 May 2021, 19:04 IST
Revenue growth projections
Revenue growth projections
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Domestic IT services firms have begun to face the heat of the raging second wave of the Covid-19 pandemic. And the impact is different from last year as it has a human factor now. Increasingly, more employees of Indian IT services companies are reporting sick. This is leading to absenteeism, which is creating challenges in the delivery of projects.

Sources in the know also said that many teams are working under tremendous pressure when some members are getting affected due to the infection.

"In the first wave last year, employee health hadn't been impacted in most cases. Now, the employees or family members are getting affected. So, the human factor is coming in now as part of the business continuity plan," said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.

"IT firms are definitely facing operational challenges during this quarter. Though the impact will not be big, something will reflect on the revenues and margins in the current quarter due to supply-side disruption," he added.

Some IT firms, which announced their quarterly earnings in late April and May, have flagged up the concerns around delivery challenges during their post-earnings analyst calls.

"As you are aware, the infection count in India has gone up significantly since April. So, the impact on the delivery side is something we have to be watchful of," Amit Chadha, CEO, and MD at L&T Technology Services said.

IT services major Cognizant, with more than 70% of people operating from India, has also said that it has to be seen how the rising caseload affects delivery.

"The impact of the pandemic on industry attrition rates, absenteeism, and client delivery remains somewhat uncertain," Brian Humphries, CEO of Cognizant had said at the post-earnings conference call.

India is currently facing an intense second wave of Covid-19 with a caseload of close to three lakh per day. This case count is far more as compared to last year's peak.

Experts said while IT firms faced more logistical challenges in terms of migrating to 'work from home last year, this time, human factor is making the situation tricky.

"If the offshore teams are not able to deliver, the global teams are pitching in. Also, companies are taking up a lot of 'contract to hire' positions as the process can be finished faster," said Aditya Narayan Mishra, Director, and CEO of CIEL HR Services.

Some experts said that not only domestic IT firms including Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, and Tech Mahindra are taking the help of global teams, global captives of multinational corporations (MNCs) are also shifting a part of their workload to other locations.

For instance, technology centres of global banks such as Morgan Stanley, Goldman Sachs, HSBC, and Deutsche Bank have plans to shift part of the workload to global teams as part of their business continuity plans if the need arises.

The current wave is also making travelling of professionals abroad difficult. While many nations including Australia, Canada, Italy, United Kingdom, Singapore have imposed a ban on entry of Indian travellers, many have made quarantine mandatory.

Apart from delivery challenges and other operational issues, the second wave if lingers can very well put a spoke on bullish growth projections of the Indian IT industry for the current financial year.

Unlike last fiscal year in which revenues grew at a tepid pace, managements of most Tier-I IT firms are hoping for double-digit growth in their toplines.

The country's second-largest IT services firm Infosys has guided its revenues to grow in a 12-14% range in constant currency for FY22. It sees the operating margin in the range of 22-24%.

Similarly, market leader TCS and the third-largest IT services firm HCL Technologies hope to post double-digit growth in the current financial year. After posting its best fourth-quarter results in a decade, Wipro also eyes double-digit revenue growth in FY22.

"The second wave has hit India at a time when the domestic IT firms are planning to accelerate their revenues by posting double-digit growth. So, delivery challenges can derail the growth plans for this fiscal," said Jain of Pareekh Consulting.

Amid the gloomy environment, there was one silver lining though. Hiring by IT companies has not shown a negative trend yet. Rather, IT firms are aggressively hiring as they require more hands for a smooth workflow.

"Jan-March quarter of fiscal 2021 has been higher than the same period of last year. The current quarter (April-June) will be at least higher by 20% than the year-ago period," said Mishra of CIEL HR Services.

Amidst this deadly pandemic, the Indian IT industry is still committed to robust hiring with the top four IT service providers -- TCS, Infosys, Wipro, and HCL Tech -- likely to recruit over 1 lakh people in 2021. This is mainly driven by the fact that the pandemic situation has stabilised in the US, and in many European countries.

Meanwhile, the Indian subcontinent is showing early signs of stabilisation as far as Covid caseload is concerned. Hopefully, the IT industry will cope with the evolving situation and emerge stronger from the second wave of the pandemic.

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(Published 23 May 2021, 16:07 IST)

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