Introduction to Labour Codes and Their Impact on IT Sector
The Indian government’s new labour codes have been a topic of discussion in the corporate world, especially in the IT sector. The codes, which redefine ‘wages’, have expanded the base for gratuity, provident fund, and leave encashment, forcing companies to recognize higher past service liabilities. This has resulted in one-time profit hits for some of the major IT companies in Q3 FY26.
In this article, we will delve into the details of the labour codes and their impact on the IT sector, with a focus on the Q3 earnings of major companies like TCS, HCLTech, Infosys, Wipro, and Tech Mahindra. We will also discuss the possible implications of these codes on the sector as a whole and the investors.
What are the New Labour Codes?
The new labour codes, which came into effect on July 1, 2022, aim to simplify and consolidate the existing labour laws in India. The codes cover four broad categories: wages, social security, industrial relations, and occupational safety, health, and working conditions.
The code on wages, in particular, has significant implications for the IT sector. It redefines ‘wages’ to include all allowances, which will increase the base for calculating gratuity, provident fund, and leave encashment. This, in turn, will lead to higher past service liabilities for companies, resulting in one-time profit hits.
Impact on TCS and HCLTech Q3 Earnings
TCS and HCLTech, two of the major IT companies in India, have already felt the impact of the new labour codes on their Q3 earnings. Both companies reported one-time profit hits due to the increased past service liabilities.
TCS reported a net profit of ₹10,814 crore for Q3 FY26, which was lower than the expected ₹11,200 crore. The company attributed the lower profit to the one-time impact of the new labour codes, which resulted in an additional expense of ₹1,300 crore.
HCLTech also reported a net profit of ₹3,445 crore for Q3 FY26, which was lower than the expected ₹3,700 crore. The company said that the new labour codes had resulted in an additional expense of ₹800 crore.
Will Infosys, Wipro, and Tech Mahindra Face the Brunt?
While TCS and HCLTech have already reported the impact of the new labour codes on their Q3 earnings, other major IT companies like Infosys, Wipro, and Tech Mahindra are yet to report their results.
However, given the similar business models and employee-intensive nature of these companies, it is likely that they will also face the brunt of the new labour codes. Infosys stock price and Wipro stock price may be affected by the Q3 results.
What Does This Mean for Investors?
The impact of the new labour codes on the IT sector’s earnings is a significant concern for investors. The one-time profit hits reported by TCS and HCLTech may not be a major issue in the long term, but the increased past service liabilities will continue to affect the companies’ profitability.
Investors should keep a close eye on the Q3 earnings of other major IT companies like Infosys, Wipro, and Tech Mahindra to gauge the overall impact of the new labour codes on the sector. They should also consider the IT sector analysis and the stock market trends before making any investment decisions.
Conclusion
The new labour codes have started affecting the IT sector’s earnings, with TCS and HCLTech facing one-time profit hits in Q3 FY26. While the impact may not be significant in the long term, it is essential for investors to keep a close eye on the Q3 earnings of other major IT companies and consider the overall implications of the codes on the sector.
As the IT sector continues to evolve, it is crucial for investors to stay informed about the latest developments and trends. For more information on the Indian stock market and the IT sector, visit our website and stay updated with the latest news and analysis.
