Indian IT giants postpone wage hikes amid weak demand

MUMBAI, INDIA — Several major Indian IT companies, including Infosys, HCLTech, and LTIMindtree, have deferred wage hikes to the third quarter of FY25.
According to a Moneycontrol report, this decision aims to manage costs and sustain profitability amid a sluggish demand environment.
Typically implemented earlier in the fiscal year, this delay reflects broader uncertainties in global demand, particularly for discretionary IT services. Companies are currently facing challenges from weak discretionary spending, delayed client budgets, and ongoing macroeconomic uncertainties.
Brokerage firm Motilal Oswal Financial Services said, “Most companies have deferred wage hikes to Q3 and beyond, which means H2FY25 margins would see headwinds from the wage front as well as furloughs.”
Impact of job market dynamics
The current stagnant job market plays a significant role in these decisions. Analysts told Moneycontrol that companies are less concerned about wage hike deferrals leading to resignations due to job insecurity among employees.
Gaurav Parab, Principal Research Analyst at NelsonHall, highlighted that factors like controlled attrition and withheld promotions have given companies confidence to delay wage increases.
Despite this, some delivery teams within these enterprises continue to offer salary hikes for top performers.
“Each unit has a budget to address exceptional talent,” Parab noted, emphasizing the focus on retaining key skills, particularly in areas like artificial intelligence (AI).
Expected margin adjustments
Brokerage reports indicate that aggregate margins might see a modest increase of 25 basis points (bps) sequentially. HCLTech is expected to lead with significant margin improvements, while Coforge might experience a contraction.
Specifically, Infosys is projected to see a 10 bps margin improvement to 21.2% quarter-on-quarter (QoQ), while HCLTech could report a substantial 120 bps increase to 18.3% sequentially1.
However, not all firms will equally benefit from these cost-saving measures. Coforge is anticipated to face a 110 bps margin contraction in the second quarter due to wage hikes, partially offset by higher utilization and lower visa costs.
Similarly, Tata Elxsi expects a 140 bps decline in adjusted margins due to lower utilization and wage hikes for junior employees.
Future outlook and hiring strategies
Looking ahead, there is cautious optimism that wage hikes are imminent as the demand environment stabilizes.
Pareekh Jain, Founder and CEO of EIIRTrend, warned that IT companies risk losing talent if they do not implement wage increases soon.
“When growth returns, they will start losing talent,” Jain stated.
In addition to deferring wage hikes, IT companies have announced plans to hire fresh graduates this fiscal year. This move could impact existing employees as firms aim to balance their workforce across different experience levels.
According to Yugal Joshi of Everest Group, while companies may welcome departures amid workforce restructuring efforts, limited exit options pose challenges for employees in the current job market.
As the industry navigates these complexities, retaining employment itself is seen as a significant advantage for many workers.