Introduction to India’s New Labour Codes
India’s new labour codes have begun to make their presence felt in the IT sector, with major players like TCS and HCLTech reporting one-time profit hits in Q3 FY26. The codes, which redefine the term ‘wages’, have expanded the base for gratuity, provident fund, and leave encashment, forcing companies to recognize higher past service liabilities. This development has significant implications for employee-intensive IT services companies, and investors are keenly watching how this will play out for other major players like Infosys, Wipro, and Tech Mahindra.
What are the New Labour Codes?
The new labour codes, which came into effect on July 1, 2022, aim to simplify and consolidate India’s complex labour laws. The codes cover four broad areas: wages, social security, occupational safety, and industrial relations. One of the key provisions of the codes is the redefinition of ‘wages’, which now includes all allowances that are not variable in nature. This means that companies will have to include these allowances when calculating gratuity, provident fund, and leave encashment, leading to higher liabilities.
Impact on IT Sector Earnings
The new labour codes have already started to impact the earnings of IT sector companies. TCS and HCLTech, two of the largest IT services companies in India, have reported one-time profit hits in Q3 FY26 due to the codes. TCS reported a profit of ₹9,726 crore for the quarter, which was lower than the expected ₹10,111 crore, while HCLTech reported a profit of ₹3,997 crore, which was lower than the expected ₹4,200 crore. The company’s management attributed the lower profits to the higher provisions made for employee benefits due to the new labour codes.
Other IT sector companies like Infosys, Wipro, and Tech Mahindra are also expected to be impacted by the new labour codes. These companies have a large workforce and will have to make higher provisions for employee benefits, which could impact their profitability. Infosys stock price and Wipro stock price are already under pressure due to the uncertainty surrounding the impact of the new labour codes.
What Does This Mean for Investors?
The impact of the new labour codes on the IT sector has significant implications for investors. The one-time profit hits reported by TCS and HCLTech are likely to be a one-off event, and the companies are expected to absorb the higher costs in the long term. However, the higher provisions for employee benefits could impact the companies’ profitability in the short term, which could lead to a correction in their stock prices.
Investors should keep a close eye on the developments in the IT sector and the impact of the new labour codes on the companies’ earnings. They should also consider the long-term implications of the codes and how they will affect the companies’ profitability and growth prospects. Indian stock market news and IT sector stocks are expected to be volatile in the short term due to the uncertainty surrounding the impact of the new labour codes.
Conclusion
In conclusion, the new labour codes have started to impact the IT sector, with TCS and HCLTech reporting one-time profit hits in Q3 FY26. The codes have significant implications for employee-intensive IT services companies, and investors should keep a close eye on the developments in the sector. While the short-term impact may be negative, the long-term implications of the codes are likely to be positive, as they will lead to better working conditions and higher benefits for employees.
