Can Global Capability Centres power the next wave of IT Hiring in India? – Industry News

India’s IT sector continues to see steady demand in the past few months despite the tariff uncertainty. This is as per the latest report from Kotak Institutional Equities. According to them, what’s very encouraging is that the expansion of Global Capability Centres (GCCs) continue and the newly established GCCs are becoming the growth drivers and taking the lead in overall hiring across the IT sector. 

Kotak Institution Equities on IT sector: GCC hiring continues

The Kotak Institution Equities report elaborated that the hiring for GCCs continue to be on a growth trajectory. Although there is some moderation in the existing GCCs, the overall trend remain supportive, buoyed by ramp-up in the Greenfield GCCs. 

They added that the “Greenfield GCCs are the bigger driver of growth with the ramp-up led by rebadging of employees of IT services companies in a few cases.”

The cost of operating the GCCs continues to be on the higher side, the report added. However, the sector has divided opinions on whether the cost of operating is higher than the cost incurred from taking services from traditional IT companies. 

Margin concerns for IT sector

The report by Kotak Institutional Equities pointed out that the overall deal activity in the IT sector is driven by cost optimization from the client instead of factors like expansion or innovation. This, in turn, affects the margins. Overall, competitive deals are declining across the IT sector, which is reducing their leverage and eventually impacting the pricing. 

Amid the decreasing margins, IT service companies are looking to cut costs. Companies adjust salaries, bonuses, and incentives in accordance with their operating margins. Also, tech companies are paying close attention to discretionary spending, such as travel, marketing, training, etc.

Rupee depreciation is also a key factor in India’s IT service companies’ margins. As most Indian companies earn in dollars and pay in Rupee, a significant Rupee depreciation can further hurt their margins. 

Kotak Institutional Equities outlook for IT sector

The Kotak report forecasts that, assuming the US economy grows slowly instead of a full-blown recession, the Engineering, Research, and Development sectors may see moderation in fresh investment. 

The report shows a balanced outlook for the list of IT sector stocks. Companies such as Tech Mahindra, Infosys, Hexaware, Coforge, and Indegene continue to be the top picks for Kotak Institutional Equities.. 

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