Labour Codes Hit Q3 IT Profits: Will Infosys, Wipro, and Tech Mahindra Also Face the Brunt?
India’s new labour codes have begun to show up in IT sector earnings, triggering one-time profit hits in Q3 FY26 for TCS and HCLTech. The codes, which redefine ‘wages’, expanding the base for gratuity, provident fund and leave encashment, forcing companies to recognise higher past service liabilities, are a material issue for employee-intensive IT services companies.
Understanding the New Labour Codes
The new labour codes, which came into effect on July 1, 2022, aim to simplify and consolidate existing labour laws in India. The codes cover various aspects of labour law, including wages, social security, and occupational safety. One of the key provisions of the new labour codes is the redefinition of ‘wages’, which now includes all allowances, except those specifically exempted.
This change has significant implications for IT companies, which typically have a large workforce and offer various allowances to their employees. With the new labour codes, these companies will have to recognize higher past service liabilities, which will impact their profitability.
Impact on TCS and HCLTech
TCS and HCLTech, two of India’s largest IT companies, have already felt the impact of the new labour codes. In their Q3 FY26 earnings reports, both companies reported one-time profit hits due to the increased liability on account of the new labour codes.
TCS reported a profit of ₹12,449 crore for Q3 FY26, which was lower than the expected ₹13,000 crore. The company attributed the lower profit to the additional liability of ₹1,300 crore on account of the new labour codes.
HCLTech also reported a lower-than-expected profit of ₹3,445 crore for Q3 FY26, citing an additional liability of ₹500 crore due to the new labour codes.
What Does This Mean for Infosys, Wipro, and Tech Mahindra?
Infosys, Wipro, and Tech Mahindra, other major IT companies in India, are also likely to face the brunt of the new labour codes. While these companies have not yet reported their Q3 FY26 earnings, they are expected to follow suit and recognize higher past service liabilities.
For Infosys stock price, the impact of the new labour codes could be significant, given the company’s large workforce and extensive employee benefits. Similarly, Wipro stock price and Tech Mahindra stock price could also be affected.
Long-term Implications
The new labour codes are expected to have long-term implications for the IT sector in India. While the codes aim to simplify and consolidate labour laws, they also increase the compliance burden on companies.
For IT companies, the increased compliance burden could lead to higher costs and reduced profitability. However, it could also lead to improved employee benefits and better working conditions, which could have a positive impact on employee morale and productivity.
Investor Takeaway
For investors, the impact of the new labour codes on the IT sector is a significant development. While the codes may have a negative impact on profitability in the short term, they could lead to improved employee benefits and better working conditions in the long term.
Investors should closely watch the Q3 FY26 earnings reports of Infosys, Wipro, and Tech Mahindra to understand the impact of the new labour codes on these companies. They should also consider the long-term implications of the codes and how they could affect the IT sector in India.
For more information on the Indian stock market and the IT sector, please visit our website. We provide stock market news, stock market analysis, and stock market tips to help investors make informed decisions.
