Introduction to Labour Codes and Their Impact on IT Sector
The Indian government’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 the third quarter of 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 other major players like Infosys, Wipro, and Tech Mahindra will be affected.
Understanding 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 various aspects of labour laws, including wages, social security, and occupational safety. One of the key provisions of the codes is the redefinition of ‘wages’, which now includes all allowances that are paid to employees, except for those that are specifically exempted. This change has resulted in an increase in the wage bill for many companies, particularly those in the IT sector, where employee costs are a significant component of overall expenses.
Impact on TCS and HCLTech
TCS and HCLTech, two of the largest IT services companies in India, have already reported the impact of the new labour codes on their financials. In their Q3 FY26 earnings reports, both companies disclosed one-time profit hits due to the increased provisions for gratuity, provident fund, and leave encashment. TCS reported a profit of ₹11,363 crore for the quarter, which was lower than the expected ₹12,141 crore, due to the additional provision of ₹778 crore for the new labour codes. Similarly, HCLTech reported a profit of ₹3,993 crore, which was lower than the expected ₹4,241 crore, due to the additional provision of ₹248 crore.
Will Infosys, Wipro, and Tech Mahindra Also Be Affected?
Given the impact of the new labour codes on TCS and HCLTech, investors are now wondering whether other major IT services companies like Infosys, Wipro, and Tech Mahindra will also be affected. While these companies have not yet reported their Q3 FY26 earnings, analysts expect them to also face the brunt of the new labour codes. Infosys, in particular, has a large employee base and a significant presence in the IT services sector, which makes it more vulnerable to the impact of the new labour codes. Infosys stock price has been under pressure in recent times, and the company’s Q3 FY26 earnings report will be closely watched by investors.
Implications for Indian Investors
The impact of the new labour codes on the IT sector has significant implications for Indian investors. The IT sector is one of the largest and most liquid sectors in the Indian stock market, and any development that affects the sector’s profitability can have a ripple effect on the entire market. Investors who have exposure to the IT sector, either directly or through mutual funds, need to be aware of the potential risks and rewards associated with the new labour codes. They can visit Indian stock market news websites to stay updated on the latest developments in the sector.
Conclusion
In conclusion, the new labour codes have started to make their presence felt in the IT sector, with TCS and HCLTech reporting one-time profit hits in Q3 FY26. While the impact of the codes on other major IT services companies like Infosys, Wipro, and Tech Mahindra is still uncertain, investors need to be aware of the potential risks and rewards associated with the development. By staying informed and up-to-date on the latest developments in the sector, investors can make informed decisions and navigate the challenges and opportunities presented by the new labour codes. They can also visit Nifty today and Sensex news websites to stay updated on the market trends and analysis.
