Shorther furloughs than last year, when they were extended due to soft demand scenario, coupled with depreciating rupee, are expected to protect the margins of IT firms during the October-December period, which is otherwise seen as a weaker quarter.
“Last year furloughs were extended because on discretionary spends were weak leading to a soft demand scenario. However, IT firms are saying that this year the span is going to be normal. Further, rupee depreciation will act as a tailwinds to margins between 30-50 bps,” an analyst from a domestic broking firm said.
Furloughs, which are a recurring challenge during the October–December period, typically disrupt revenue for IT firms as clients pause projects temporarily. It occurs when clients suspend operations during periods such as Christmas and New Year, impacting domestic IT firms that continue to pay employee salaries despite not invoicing clients for the furlough period.
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“Last year, we had an unprecedented level of furloughs. This year, furloughs are going to be back to regular levels. We definitely don’t anticipate the same level of furloughs as last year, so it will be positive for us,” LTIMindtree had told Fe in an earlier interaction, adding that the situation reflects improved planning and client stability.
Infosys had echoed similar sentiments. “We have baked in the regular furloughs (in the guidance) that we have seen over the past few years,” Jayesh Sanghrajka, chief financial officer had said after the company’s Q2 earnings.
Further, the depreciation of the rupee against the US dollar has emerged as a significant tailwind for IT companies as nearly 50-60% revenue of these companies come from the US.
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Pareekh Jain, CEO of Pareekh Consulting and EIIRTrend said, “Furloughs are not going to get worse this year.
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