Accenture to fire 19,000 employees: Key takeaways for Indian IT firms

While Accenture's second quarter results and its guidance for FY23 managed to beat Dalal Street expectations, what emerged as the sole sore point was its announcement of layoffs. The IT major, whose results are closely tracked in India due to its large outsourcing business, said it would fire 19,000 employees. Analysts said the move reflects cost pressure but would also mean low attrition for the domestic IT firms going ahead.

The layoffs reflect cost pressure, Nuvama Institutional Equities said in a note.

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Kotak Institutional Equities said these layoffs are not just due to a slowdown in near-term demand, but also to address bloated cost structures caused by supply-demand mismatch coupled with the strong pace of hiring in the past two years.

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"With a slowing growth outlook, layoffs from global tech and weaker funding for Indian tech startups, we expect attrition to continue to fall providing tailwinds to margins for Indian IT companies," said Nomura India.

In numbers, 19,000 employees accounted for 2.5 per cent of Accenture's workforce, equally split between billable and corporate resources. The Accenture management indicated that this is part of a proactive rationalisation exercise to correct the structurally higher cost base due to compounding wage inflation witnessed over the past two years. Importantly, it said that this does not reflect demand weakness.

"Accenture, however, does indicate pressure on margins, exacerbated likely by higher share of large deals and relatively lower growth, in our view. We see such (layoffs) action as necessary for India IT players as well as a slower growth and falling inflation makes utilisation and pyramid correction difficult levers to pull," said JM Financial.

Accenture said half of the 19,000 employees will depart by the end of FY23. Nirmal Bang said Accenture's step should be seen in the context of likely attrition (voluntary) of 130,000-170,000 employees over this timeframe and the fact that utilisation levels are at 91 per cent.

Nirmal Bang said it sees it as an indication that some of the employees hired during the pandemic phase were at much higher compensation and this is a means of shedding some of them.