Leadership position

Large IT firms are witnessing changes at the top

A surprise change of the guard at Tata Consultancy Services (TCS) is unlikely to affect continuity at India’s largest IT services and consultancy firm. TCS has always preferred internal lines of succession. Chief Executive Officer (CEO) Rajesh Gopinathan, who led the company for six years and was due to continue for four more, leaves in September. He will be replaced by K Krithivasan, a 34-year TCS veteran who is currently head of the banking, financial services and insurance (BFSI) vertical, which contributed $11 billion of revenues in TCS’s $27-billion top line in FY22. TCS, with its bench strength of over 613,000, contributes over 27 per cent of the aggregate revenues of the Indian IT sector, and roughly 34 per cent of its net profits. Investor projections about moderate growth through next financial year remain unchanged.

TCS is not the only major IT services company that is due to see changes at the top in FY24. Infosys President Mohit Joshi is leaving to join Tech Mahindra as CEO, replacing C P Gurnani, who retires this December. Another Infosys president, S Ravi Kumar, moved to take over as CEO at Cognizant in November last year. This means new leaders will be at the helm of Cognizant and Tech Mahindra, and there’s a shake-up near the top at Infosys. Taken together with TCS, that involves changes in leadership at four companies, with a total of 1.5 million employees and aggregate FY23 revenues of over $70 billion.
 

Management guidance across the sector indicates FY24 will be a difficult year for the IT services industry. The global slowdown had led to cautious projections, citing weak margins and weakening demand. However, that was prior to the events in the US and European banking systems, which would have a negative impact on BFSI contracts. This may well lead to further downgrades of growth projections. Most IT companies expect their clients to focus on cost-optimisation through FY24, and to postpone long-gestation IT expenditures until the global economic conditions improve. The pessimistic guidance from various companies has been reinforced by cutbacks in hiring over the last two quarters. TCS, for example, witnessed a net reduction in personnel in the last quarter. Indian companies are also juggling with currency volatility. The rupee has been under pressure against the dollar. But it has seen wild swings against the euro, pound, and yen. Treasury operations have been balanced on a tightrope as a result. Given persistent high inflation and growth uncertainties, currency volatility is expected to continue through the next fiscal year and this may affect strategic planning across the industry.
 

On the positive side, most companies are now seeing employee attrition easing from the extraordinarily high levels of the last three years and a lower churn should lead to significant reductions in employee-related costs. Sub-contracting expenses have also reduced. Due to these favourable supply-side factors, managements appear mildly optimistic that operating margins have bottomed out and stabilised even if improvements are not likely in the near term. TCS is a bellwether stock not only due to its size. It has a presence across every industry vertical and exposures across every economic bloc. Given its scale, it’s remarkable that it has managed to maintain superior margins as well. Mr Krithivasan’s track record and insider status leave him well placed to help TCS maintain its pole position.