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Mint
5 days ago
- Business
- Mint
Young workforce shrinks at TCS and Infosys. Is the pyramid model breaking?
India's top two IT companies—Tata Consultancy Services Ltd (TCS) and Infosys Ltd—are seeing a sharp decline in their young workforce, raising concerns over the sustainability of the traditional employee pyramid model. Analysts warn that the shrinking number of employees aged under 30 could indicate automation-led redundancy in entry-level roles and point to broader shifts in the IT services market. Young graduates increasingly prefer startups, captive tech centres of global firms like Google and Microsoft, and product-based tech companies—drawn by better pay, faster growth, and more creative, less mundane work, they added. This assumes significance as it signals cracks in the traditional pyramid model used by Indian IT firms, where a wide base of young workforce supports a narrower band of experienced professionals and management. With fewer young hires, slower hiring, and narrow margins, companies like TCS and Infosys are under pressure to rethink their workforce plans amid weak global tech demand. Also read: TCS, Infosys hop onto Adobe's new platform to sell AI services to clients Falling numbers At TCS, just 47.7% of employees in India were below 30 years of age as of March 2025—down from 59% in FY22. This implies 44,542 fewer young employees at TCS than it had three years earlier. While the company doesn't provide region-wise data, about three-fourths of its global workforce of 607,979 is based in India. Infosys shows a similar pattern. Only 52% of its 323,578 employees were equal to or under 30 years of age at the end of FY25, down from 60% in FY22—a net drop of about 17,609 younger employees. 'It is interesting to note that the percentage of employees in the less-than-30 years' age group is at the lowest level over the past six years across most geographies," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 3 June. Analysts say automation is partly to blame. 'The primary areas of deployment for entry-level employees was managed services where these employees handled customer support roles. With automation tools on offer, there is lesser need for such people which can be another reason for the lowering count of those aged 30 and below," said Ashutosh Sharma, research director at Forrester Research, a Massachusetts-based research and advisory firm. Phil Fersht of HFS Research echoed this view: 'Advances in automation and AI have enabled these firms to deliver traditional services with fewer headcounts. In addition, many clients are demanding lower prices, which is driving providers like TCS and Infosys to deliver with fewer people." Also read: How India's mid-cap IT bested the Big Four in hiring Broken pyramid Analysts are flagging the structural challenge this poses to the pyramid model. 'Significant improvement in the pyramid from the current levels requires healthy revenue growth in the normal course of business, not our base case in FY2026E," said the Kotak analysts. TCS's revenue in FY25 rose only 3.78% to $30.18 billion—its slowest growth in four years. Infosys's revenue growth was similarly sluggish at 3.85%, touching $19.28 billion. India's IT outsourcers saw slower growth last year as global clients cut back on tech spending due to economic uncertainty. 'Improving the employee pyramid will help in structurally better margins," said the Kotak analysts. Hiring entry-level employees increases operating margins of an IT outsourcer as they can be deployed in projects at lower costs compared with executives of higher experience, for whom the client has to shell out a greater amount. TCS and Infosys posted operating margins of 24.3% and 22.1%, respectively, in FY25. A Mumbai-based analyst, speaking on condition of anonymity, noted that slow hiring reflects sluggish demand for IT services. 'IT service providers hire junior employees, most of whom fall under 30, when there is high demand for tech services. This was the case in FY22 when plenty of freshers were added. Now because growth has been a little sluggish, hiring has been low and which is why we see fewer young people." In FY22, TCS and Infosys had added over 157,000 employees combined. In FY25, that number dropped to just 12,771. This also shows up in campus placement data. Engineering colleges across India have reported fewer offers from top-tier IT services companies over the past two years. Many final-year students who would typically receive early offers from TCS and Infosys are now seeking opportunities at product firms, fintech startups, or overseas universities instead, according to placement officers at institutions in Bengaluru and Pune. Also read: TCS vs Infosys vs Wipro: How many freshers are IT majors hiring in FY26? Job outlook for upcoming year explained Ageing abroad TCS faces a more pressing issue abroad: an ageing workforce in key markets. In North America, which contributes over half of TCS's revenue, more than 20% of its workforce is over 50 years old. In Europe, nearly 28% of its employees are above 50. Worryingly, the firms are also losing their appeal among young jobseekers. This shift in demographics isn't just a TCS or Infosys problem—it reflects a broader transformation in the Indian IT services landscape, which has historically relied on a large, young, and inexpensive workforce to deliver cost-effective offshore services to global clients. With that model under strain, the entire sector may be heading for a reset. Infosys received 4.46 million job applications in FY25—a 24% drop from FY22. TCS does not share comparable data. While neither company responded to emails seeking comment, people familiar with internal HR strategies at TCS and Infosys said both firms are exploring re-skilling and AI-integrated training programs to improve employee productivity. Also read: Primer: Is geopolitics to blame for your missing pay hike?
Mint
14-05-2025
- Business
- Mint
How India's mid-cap IT bested the Big Four in hiring
The Big Four of Indian IT ceded their crown as the industry's top hirers in FY25, beaten by smaller rivals which grew faster for the second year in a row. While the heavyweights added 9,442 employees, their mid-cap rivals together added 25,794, data from earnings reports showed. The Big Four include Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd and Wipro Ltd which earn above $10 billion annually, while the mid-cap IT firms are Tech Mahindra Ltd, LTIMindtree Ltd, Mphasis Ltd, Coforge Ltd, Persistent Systems Ltd, Hexaware Technologies Ltd, L&T Technology Services Ltd, Sonata Software Ltd, and Firstsource Solutions Ltd which earn $1-6.3 billion. Mid-cap IT firms hired more as they grew faster, at least one analyst said. Also read: Tech Mahindra banks on growth from new consulting and GCC units 'One simple reason for the mid-caps adding more net headcount last year as compared with the Big Four is that they have been growing faster than the larger peers," said Abhishek Kumar, equity research analyst at JM Financial. Mid-caps other than Tech Mahindra saw revenue growth of 4.43-31.2% last fiscal, while the big three including TCS, Infosys, and HCLTech grew 3.78-4.3%. Wipro and Tech Mahindra reported a second straight year of revenue decline. To be sure, the top four companies remain Indian IT's biggest employers with about 1.39 million people on their rolls, while smaller firms employ 420,599, or a little more than a third of what their larger peers have. The growth and hiring momentum at mid-cap IT firms is also due to the smaller companies winning deals from the Big Four, a second expert said. 'Tier-1 vendors have been the net beneficiaries of vendor consolidation in the past cycles, although this feat may be tough to replicate in the current cycle," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S. and Vamshi Krishna, in a note dated 13 May. Vendor consolidation deals refer to a strategy where clients reduce the number of IT vendors they work with. Mumbai-based TCS added 6,433 people last fiscal, the highest among large-caps, whereas Noida-based Coforge added 8,771 employees, the most among India's 15 largest IT services companies. Even the latter's full-year revenue growth of 31.2% was the highest among the country's IT outsourcers. To be sure, Coforge made its largest acquisition, that of Cigniti, the Hyderabad-based engineering services company last fiscal year. Also read: 'Persistence' pays off as India gets a new ninth-largest IT company 'In addition to reduced deal sizes, a couple of factors are playing to the advantage of mid-tier companies—(1) many challengers are hungrier with excellent management teams, (2) competencies are much improved and (3) some of the Tier 1s have slipped in execution," the Kotak analysts said. The increase in headcount comes on the back of a series of large deal wins for the mid-cap companies. LTIMindtree bagged its largest deal on Monday, a $450 million contract spanning seven years with ADM, a Chicago-based food processing company. This comes less than three months after Coforge bagged its largest contract, a 13-year deal valued at $1.56 billion with Sabre, a Texas-based travel technology company in March. In contrast, the Big Four have struggled to win large contracts, except Wipro that inked two deals valued at $500 million and above within a span of 12 months. 'The mid-cap firms are clearly taking market share from the larger firms," said Peter Bendor-Samuel, founder of Everest Group. 'At this time, the market is favouring specialist firms which promise to provide more executive time and commitment. These (mid-cap) firms are often focused in higher growing niches and do not have the problem of the underperforming market segments which are dragging down the revenue of the larger diversified firms," said Bendor-Samuel. The picture was different in FY24, when IT companies shrank headcount. Also read: TCS launches India-focused sovereign cloud to boost domestic revenue While the large-caps cut headcount by 63,662 employees, the smaller peers reduced by 8,031. Seven of the 11 largest IT services companies ended that year with fewer workers. To be sure, there has been an increase in the $1 billion club of Indian IT over the last two years. RP Sanjiv Goenka-owned Firstsource was the latest entrant after it reported $250 million in revenue for the April-March 2025 period, giving it a $1 billion run-rate. Hexaware and Persistent Systems were the two other companies to enter the club.
Mint
07-05-2025
- Business
- Mint
Mid-cap outperform larger peers yet again, threaten to eat their lunch
Smaller information technology (IT) services companies earning $1-5 billion in revenue outgrew the Big Four by more than three times in FY25, a performance they may repeat in the year ahead, multiple analysts tracking the sector said. Better execution skills and skilful navigation of the GenAI disruption have helped the mid-cap IT companies eat into the business of their larger rivals. Coforge, Persistent Systems and Hexaware Technologies Ltd reported revenue growth of 31.5%, 18.8%, and 13.7%, respectively in the last fiscal year. To be sure, Hexaware follows a January-December financial year while other homegrown IT services companies follow an April-March financial calendar. Meanwhile, Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies grew 3.78%, 3.85% and 4.3% respectively, and Wipro Ltd's revenue fell 2.72%. Historically, all these companies would bid for different projects but over the last 12 months, the rise of Gen AI has enabled smaller companies to compete with their larger peers. 'Inherently, new technologies tend to be deflationary, a headwind for incumbents and an opportunity for challengers. Additionally, the difference in technology expertise (skill + scale) narrows down in new technologies, aiding challengers. It will be difficult for incumbents to aggressively incorporate Gen AI into their services portfolios, given the larger size relative to challengers who can better afford to cannibalize existing revenues to get a bigger portion of the pie from incumbents," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 2 May. Stable leaderships have helped too. Coforge, Persistent and Hexaware have each had chief executive officers (CEOs) who have been in their positions for more than five years. Also read | Creditors seize pledged shares as small, mid-caps slide Srikrishna Ramakarthikeyan took over as CEO of Hexaware in August 2014, whereas Sandeep Kalra took over as Persistent Systems' CEO in October 2020. Both were former HCLTech employees who had been in the company more than a decade. Sudhir Singh took over as Coforge CEO in May 2017. He had spent a little more than nine years at Infosys. This is in contrast to TCS, Wipro and Tech Mahindra, each of which have new CEOs with less than two years of experience at the helm. K. Krithivasan took over as TCS CEO in June 2023 whereas Mohit Joshi joined Tech Mahindra as its CEO in December 2023. Srinivas Pallia was the latest entrant to the CEO club after he took over Wipro's reins in April last year. This suggests that work experience in a larger IT services firm may have helped the chief executives of smaller IT outsourcers grow faster. 'We forecast strong 20.8% organic c/c revenue growth in FY26, an acceleration from 16.4% in FY25E on the back of (1) strong broad-based growth momentum across geos, verticals and services, (2) healthy increase in 12-month order backlog, up 47.7% yoy and 10.3% qoq buoyed by the Sabre deal; (3) strong deal win trajectory and pipeline and (4) revenue synergies from Cigniti through cross-selling of Coforge's services to Cigniti's F-500 accounts. We expect Coforge to be the industry leader of revenue growth in FY2026 on an organic basis," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna, in a note dated 6 May. Read this | How a US tech giant's AI ambitions came to be Indian IT's bugbear Smaller peer Persistent Systems is expected to keep its momentum going. 'PSYS'(Persistent Systems) unique value proposition and its strong play around regulated verticals are keeping it more resilient in this adverse environment. Additionally, the investments around hiring senior leadership team within key verticals have been instrumental in fueling client mining/hunting activities and closing large strategic deals," said Prabhudas Lilladher analysts Pritesh Thakkar and Sujay Chavan in a note dated 24 April. While Coforge expects a strong FY26 on the back of its deal wins and pipeline, L&T Technology Services Ltd's management expects FY26 to be better than FY25, much like TCS. For now, mid-cap IT services companies including LTIMindtree Ltd, Mphasis Ltd, Coforge Ltd, Persistent Systems Ltd, Hexaware Technologies Ltd, and L&T Technology Services Ltd have outperformed their larger peers. The mid-caps reported yearly revenue growth between 4.43% and 29.15% whereas the large caps reported an at best growth of 4.3% on a yearly basis, lower than the worst-faring mid-cap company. This divergence in performance signals that smaller IT services companies have weathered the economic uncertainty much better than their larger peers. Coforge was Indian IT's best performer last year, as revenue flooded in from Cigniti, the Hyderabad-based engineering services company that it bought last May in its biggest acquisition. Coforge also became the only company among its peers to sign a mega deal, those valued at over $1 billion, last year. It ended March 2025 with a full-year revenue of $1.45 billion. The Noida-headquartered company also inked a $1.56 billion, 13-year deal with Sabre, a Texas-based travel technology company, in March. Also read | 'Persistence' pays off as India gets a new ninth-largest IT company The mega deal and the Cigniti acquisition propelled Coforge to become India's eighth-largest IT services company. Much like TCS, Coforge's chief executive said that FY26 was expected to be a 'strong growth year' for the company on the back of a strong order pipeline, when he addressed analysts in the company's post-earnings call on Monday. At least one executive said that IT companies would need a steady pipeline of deals to withstand the macroeconomic uncertainty. 'We have not seen any cancellations, we are seeing a certain amount of feet dragging in terms of deal closures. I do believe personally that in our industry, we will need more pipeline to be able to do the bookings whether it is Persistent or somebody else. And so we are at it, and we may do investments in sales and marketing and in our go-to-market accordingly," said Sandeep Kalra, chief executive of Persistent Systems, as part of the company's post-earnings analyst call on 24 April. A key sore point for the Big Five was its slim order book. TCS and Wipro started FY26 with an order book which was smaller than the one they had at the start of FY25, while Infosys clocked fewer large deals in FY25, implying weaker revenue growth in the year ahead. In contrast, Coforge reported $2.1 billion in orders during the January-March period, its strongest order book in a quarter, whereas LTIMindtree reported a second consecutive quarter of orders exceeding $1.5 billion in contract value. Also read | Coforge has won a mega tech deal, but can Sabre service the contract? However, the questions don't end here. Experts said that mid-caps are eating into the revenue of the large caps. 'The Tier-2 set have been taking away market share from the Tier-1 set due to better execution and due to their smaller size. And unlike in the past cycles, they have performed better than the Tier-1 largely due to better management teams," said Girish Pai, head of equity research for Bank of Baroda Capital Markets, in a note dated 29 April. A third analyst said that mid-caps also worked with smaller teams and a more specialized focus that enabled them to have a deeper understanding of the client and access to more work. 'Mid-caps have smaller teams which work quicker compared with large teams and this makes it easier for them to respond to client requests," said a Mumbai-based analyst on condition of anonymity. A fourth analyst partly agreed with the assertion that mid-caps can eat the lunch of their larger peers, adding that smaller IT services companies can respond to clients' needs quicker when the latter want to increase their non-essential tech spending. 'Discretionary demand changes over time and at times, it's small when a new opportunity like digital or AI comes along. Slowly, the projects become bigger and in the initial stages of such discretionary spend scenarios where project sizes are small (where we are now) some mid caps, who have timely built skills and capabilities in that space can be more nimble in responding to those needs," said Ashutosh Sharma, research director at Forrester. And read | LTIMindtree: New year, new plan – but will it work?
Mint
23-04-2025
- Business
- Mint
What feeble order books foretell for India's tech bluechips
Slimmer order books and fewer mega-deals spell gloomy days ahead for four of India's largest IT services companies, posing an additional headache in a world of rising turbulence and advancing AI. Tata Consultancy Services Ltd (TCS) and Wipro Ltd started FY26 with an order book which was smaller than at the start of FY25, while Infosys clocked fewer large deals in FY25, implying weaker revenue growth in the year ahead, five analysts said. TCS and Wipro also clocked fewer mega-deals (contracts above $1 billion) in the past year. Mumbai-based TCS won orders worth $39 billion, 7.7% below what the country's largest IT services company won in FY24. TCS reported 3.8% dollar revenue growth to end the year with $30.18 billion in revenue. Wipro's order book was down 4% last year to $14.3 billion, whereas cross-town rival Infosys reported large deals worth $11.6 billion, down 34% year-on-year. HCL Technologies won $9.27 billion worth of new deals last year, a 5% drop from the $9.76 billion won in FY24. Also read | Captive concerns: Why Cognizant has called out the risk from GCCs At Wipro, while the value of deals above $30 million was higher during the year, overall deal bookings fell. Infosys spells out the value of only large deals above $50 million, but not the overall contract value during the year. "In FY25, TCV (total contract value) declined 34% y-o-y to $11.6 billion. The extent of decline in TCV could be the highest among peers," Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna wrote in a note dated 18 April, after Infosys declared its earnings. "The decline is across both renewal (-40.2% y-o-y) and new TCV (-28.5% y-o-y). The lack of new mega deals decreases revenue growth visibility for FY26E unlike in FY25, where they provided significant revenue growth visibility," said analysts at Kotak. A second analyst voiced a similar opinion. 'The low orders win reflects the muted sentiment that we are seeing in the enterprise IT spend," said Ashutosh Sharma, vice-president of Forrester, a Massachusetts-based tech advisory firm, referring to the three tech companies. Read this | Infosys started the year strong, but will the end pack a punch? 'The last six months of FY25 were impacted because of this uncertainty. Now, as we go into FY26, it means that because of this uncertain tariff situation, we cannot get some clarity on demand. Consequently, we will see lower revenue, as is evident in the IT services companies' guidance for the next financial year," said Sharma. TCS does not give revenue guidance. However, chief executive officer K. Krithivasan has said he expects the company to grow faster in the current fiscal year than last year. Both Infosys and Wipro have outlined a slow start to FY26. Infosys projected its slowest growth for the fiscal year at the beginning of the year since April 2009. Wipro projected its slowest start to the new fiscal year, with April-June revenue expected to decline in constant currency. Constant currency does not take currency fluctuation into account. For now, Wipro has attributed the weaker order book to slow spending among its smaller clients. 'The deals in the smaller and medium-sized bucket are not growing fast enough. And now, bookings are largely coming through the large deals," said Aparna Iyer, chief financial officer of Wipro, in response to a question on declining full-year order bookings during the company's post-earnings interaction with analysts on 16 April. Also read | Will Pallia's game plan for Wipro secure Rishad Premji's legacy? Wipro's large deal bookings grew 17% on a yearly basis to $5.4 billion, even as its total order bookings declined. "[W]e believe the small, medium size deals would continue to leak the bucket, while large transformation deals might see execution delays in the near-to-medium term," Prabhudas Liladher analysts Pritesh Thakkar and Sujay Chavan wrote in a note dated 17 April, after Wipro declared its earnings. Weaker order books come in the backdrop of an uncertain macroeconomic climate fuelled by President Donald Trump's tariff threats, which have led many Fortune 500 companies to pause tech spending and put essential tech projects on hold. Fewer order bookings may also affect hiring at three of the country's four largest IT outsourcers, which together employ 1.16 million people. Fewer orders imply less work and less need for talent. A fourth analyst voiced his opinions on these lines. 'We need to prepare for a world where revenues per employee will rise to $1M per employee by 2028. This means there will be fewer employees at all the IT majors," said R. Wang, founder of Constellation Research, a California-based tech advisory firm. Read this | HCL's software products business falls short of profitability expectations The country's largest IT services providers generate between $44,000 and $60,000 in revenue per employee. Wang added that efficiency will further reduce the IT budgets of clients, which can hurt business. 'If successful, the top companies will be able to reduce their overall IT spend by 25% the way X and Meta have done. IT budgets are coming down because of exponential efficiency," said Wang. The rise of Gen AI is also bad news for the country's $283 billion IT industry. Homegrown IT services firms currently deploy an army of engineers to do mundane and repetitive work. The advance of Gen AI implies that algorithms that use company-specific data can do the repetitive work that humans do. Using more Gen AI tools helps clients save costs and can potentially generate less revenue for IT services companies. And read | Many Indian IT companies now station their CEOs where the grass is greenest
