Rising subcontracting cost hits IT majors in Q3 FY26
H-1B VISA FALLOUT. For 3 of India’s top five firms, spend rose more than 20% y-o-y.
The impact of visa restrictions, including the increased H-1B visa fee and appointment disruptions, is adding to the costs of Indian IT majors. Three of India’s top five IT services firms recorded more than a 20 per cent year-on-year increase in subcontracting expenses in Q3 FY26.
Tata Consultancy Services (TCS) posted the highest increase in such spends, with subcontractor costs reaching ₹3,560 crore in the December quarter—a 26.6 per cent increase from the previous year. Infosys followed with a 23.9 per cent year-on-year increase, posting ₹4,092 crore in costs, while HCL Tech reported a 23.3 per cent rise to ₹4,775 crore. In contrast, Wipro and Tech Mahindra saw more subdued increases of 6.8 per cent (₹2,766 crore) and 5.7 per cent (₹1,541 crore), respectively.
Phil Fersht, CEO and Chief Analyst at HFS Research, stated that subcontracting has become an operational necessity as higher visa fees and longer processing times have raised the cost of deploying offshore employees onsite. Firms are increasingly relying on locally hired subcontractors in client geographies to maintain delivery speed and continuity, particularly for shorter, regulatory-sensitive, or client-facing roles.
While subcontracting helps IT firms avoid the long-term costs of full-time employees during low-demand periods, it can eat into margins if it becomes a sustained, structural reliance. Beyond visa issues, subcontractors also act as a quick fix for the scarcity of specialized talent, providing immediate access to niche expertise in areas such as AI engineering, cloud security, and data platforms. Additionally, in an uncertain demand environment, subcontractors can serve as a "risk-buffer" for these firms.
Provision for Labour Codes dents Q3 earnings, but IT firms see limited long-term impact
In the quarter ended December, top Indian IT services firms took a sizeable one-time financial hit of ₹4,675 crore due to the implementation of the new Labour Codes. This impact mainly reflected higher gratuity liabilities and increased leave encashment obligations arising from the revaluation of past service costs. In November 2025, the Centre notified these codes, which consolidated 29 labour laws into a unified framework and introduced a uniform definition of wages and enhanced leave benefits.
Infosys noted that its adjustments for the Labour Codes totaled ₹1,289 crore. On this account, the company's profit after tax (PAT) fell 9.6 per cent se-quentially to ₹6,654 crore. Management expects the impact on margins from these changes to be approximately 15 bps.
Tata Consultancy Services (TCS) reported a ₹2,128 crore impact, of which approximately ₹1,800 crore was for higher gratuity liabilities and ₹300 crore for leave encashment. Its net profit declined 11.7 per cent quarter-on-quarter, though the company noted these costs relate to past service and are one-o in nature, with an ongoing impact expected to be minimal at 10-15 bps.
HCLTech reported that its PAT of ₹4,076 crore fell 11.2 per cent due to a one-time provision of ₹956 crore related to the codes. Excluding this item, its adjusted PAT actually rose 4.4 per cent year-on-year.
Wipro recorded a net profit of ₹3,119 crore, but adjusted for the ₹302 crore impact of the new Labour Code, its net profit would have been ₹3,360 crore, representing a 3.6 per cent sequential increase.
Analysts view this hit mainly as a margin adjustment rather than an issue aecting demand or revenue. Biswajeet Mahapatra, Principal Analyst at Forrester, indicated that management commentary suggests a modest recurring annual impact of 10-20 bps going forward. Jimit Arora, CEO of Everest Group, added that the change is expected to be a one-time occurrence and noted that the industry has simultaneously seen significant tailwinds from the depreciating rupee.
Flows into equity MFs dip 11% in 2025 on valuation, earnings issues
RETAIL BET. But SIP inflows into equity markets hit record ₹31,002 cr in December.
By Suresh P Iyengar
Inflows into equity mutual fund schemes fell 11 per cent last year to ₹3.52 lakh crore from ₹3.96 lakh crore in 2024, even as retail investments through Systematic Investment Plans (SIPs) hit new highs monthly. Informed investors have been trimming their exposure to equity mutual fund schemes due to high market valuations, global uncertainties, and a potential slowdown in the revival of corporate earnings.
Despite this, retail investors are betting significantly on equity markets, with SIP inflows reaching a record ₹31,002 crore in December. For the current fiscal year, SIP inflows have already reached ₹2.57 lakh crore, which is 89 per cent of the total ₹2.89 lakh crore recorded in the entire previous fiscal.
THEMATIC FUNDS AND OUTFLOWS
Specific fund categories saw varied performance:
- Dividend yield funds experienced a net outflow of ₹456 crore last year, compared to an inflow of ₹5,791 crore in 2024.
- Thematic fund investments plunged 76 per cent to ₹38,145 crore, down from ₹1.55 lakh crore.
- Equity-Linked Savings Schemes (ELSS) registered a net outflow of ₹2,030 crore.
- Multi-cap schemes saw investments drop 14 per cent to ₹35,145 crore.
MARKET OUTLOOK
Pawan Bharaddia, Co-Founder and CIO at Equitree Capital, noted that market corrections typically last 15-18 months; the current cycle is roughly 16 months in since September 2024. While recent corrections have improved the risk-reward ratio, the next 3-4 months may remain volatile due to shifting liquidity and global politics. He suggests that core allocations should remain in diversified or flexi-cap strategies, with small-caps serving as measured satellite exposure through managers focused on bottom-up research.
According to DSP Mutual Fund, Nifty 50 earnings slowed sharply to low single digits through FY25 and the first half of FY26 following four years of double-digit growth. Factors contributing to this include tightened banking liquidity, soft household consumption, and uncertainty surrounding US tariffs, which have specifically impacted foreign investor sentiment and export-oriented segments like textiles and engineering. Over the next three years, returns are expected to be driven by patient stock selection rather than broad market re-rating.
Can ‘cooling-as-a-service’ fix the decarbonisation gap?
India’s cooling-related energy demand is projected to surge 15-fold by 2050, increasing from 90 TWh in 2016 to 1,350 TWh. The proliferation of data centres, fabrication units, and pharma and automotive manufacturing plants is raising the status of cooling infrastructure to that of a ‘critical utility’. However, growth may be slowed by energy wastage resulting from inefficient engineering and a reliance on “thumb rules” rather than operating data.
Traditional procurement processes typically prioritize the lowest initial cost (L1) over long-term operational expenses. Since energy accounts for nearly 70 per cent of a cooling system’s total lifecycle cost, the cheapest equipment often proves to be the most expensive over time. The Cooling-as-a-Service (CaaS) model addresses this by shifting cooling from a capex-heavy investment to an operational expense (opex). In this model, the service provider invests in high-efficiency technology and takes a share of the actual energy savings delivered.
Cooling is a dynamic process that often requires 200-300 machines working in concert across changing climatic conditions and occupancy levels. Legacy building automation systems often use fixed logic, ignoring the fact that equipment efficiency decreases over time—much like a car that provides better mileage in its third year than its tenth. Newer systems use AI to process real-time feedback and adjust parameters like water flow and motor speeds without human prompts. These intelligent autonomous operations enable substantial savings even in sites where the provider has limited control over the original design.
The potential for this sector is vast, with estimates suggesting CaaS could become a ₹30,000 crore industry. Leading players include Tata Power, which launched a CaaS business in India through an alliance with Singapore-based Keppel, promising to cut energy use by 40 per cent and carbon emissions by 50 per cent. Other major competitors include Adani Energy Solutions and Singapore-based BECIS, while specialist startups like SmartJoules differentiate themselves through an in-house approach to engineering, execution, and maintenance.
Where can you find new jobs today?
By Kamal Karanth
Every January, the question of the job market’s health arises, and the answer currently depends on the "pond" in which a candidate is fishing. A combination of factors, including AI, geopolitical headwinds from the new US regime, new labour codes, and the influx of global capability centres (GCCs), are currently influencing the creation of new jobs in India.
A Market Catching a Cold
The current talent market is experiencing a significant downturn compared to the post-pandemic hiring surge that peaked at 325,000 openings in January 2022. January 2026 has opened with only 200,000 active talent openings, the second-lowest demand recorded since January 2021. If job seekers find their emails and calls are not being returned, it is because current openings are at near-pandemic lows.
Traditionally, the IT and BFSI sectors have been the primary enablers of new jobs, but both have remained largely flat over the last nine months. Additionally, the top five IT services companies have seen an estimated ₹5,000 crore increase in salary costs due to new labour code reforms, which has increased margin pressures and lowered revenue visibility.
Sectoral and Geographic Breakdown
The 200,000 active openings currently in the market are split into 103,000 tech roles and 97,000 non-tech roles. The specific cohorts are performing as follows:
- IT Services: Seeing record lows with just 50,000 openings.
- Software Products: Offering some hope with 30,000 openings.
- BFSI: Providing over 20,000 openings, though this remains well below peak demand.
- Startups: Remaining cautious with only 15,000 active openings.
For the more than one crore fresh graduates entering the market this year, the outlook is particularly challenging, as entry-level jobs are at a six-year low with only 42,000 openings. Geographically, while jobs remain concentrated in metros, tier-2 and tier-3 locations account for 59,000 openings.
The GCC Promise
The most promising segment for new jobs remains the Global Capability Centres (GCCs). Last year, 85 greenfield GCCs added 150,000 new jobs in India, bringing the total GCC employee base to two million. With another 100 GCCs expected to set up shop in 2026, it is likely that 100,000-plus new jobs will be added within this segment alone. Outside of the GCC world, employees may need to be less adventurous in their job hunting this year.
How HCL Tech defied Indian IT’s four-year slump
HCL Technologies Ltd has emerged as the sole bright spark during a sombre four-year stretch for India’s IT sector, leveraging stable leadership and an early pivot toward artificial intelligence (AI) to outpace its "Big Five" peers. While the broader industry grappled with a post-pandemic hangover and slowing deal pipelines, Noida-based HCLTech delivered a 29 per cent return since early 2022.
Data compiled by Bloomberg indicates that HCLTech shares climbed 28.86 per cent between January 1, 2022, and January 16, 2026. During this same period, the rest of the Big Five saw significant slumps: Tata Consultancy Services (TCS) fell 14.2 per cent, Infosys dropped 11 per cent, Tech Mahindra declined 6.7 per cent, and Wipro plummeted more than 25 per cent.
HCLTech CEO C. Vijayakumar noted that the company has delivered the highest growth among large-cap firms for the last three years and is expected to do so for a fourth consecutive year. The company is currently guiding for full-year growth of 4 per cent to 4.5 per cent in constant currency terms while maintaining stable operating margins despite a constrained global spending environment.
A critical factor in this resilience has been HCLTech's proactive stance on Generative AI. Vijayakumar stated that the firm acknowledged early on that AI would lead to deflation in some services and focused on addressing it through advanced capabilities such as "agentic AI," "AI factories," and "physical AI". Analysts at Motilal Oswal have characterized HCLTech’s business as "all-weather," highlighting its ability to outperform amid macroeconomic uncertainty and high interest rates in the US and Europe.
The performance gap also reflects a "tale of two management styles". Vijayakumar has provided a sense of continuity since taking the helm in 2016, whereas rivals like Wipro have seen three different CEOs in that same timeframe. While HCLTech successfully turned AI promises into share price gains, its peers have leaned heavily on dividends, buybacks, and bonuses to retain investor interest; in the last four years, TCS returned ₹1.5 trillion to shareholders, followed by Infosys at ₹69,000 crore and HCLTech at ₹51,000 crore.
Sequoia to join GIC, Coatue in $25 bn Anthropic funding round
Venture capital firm Sequoia is reportedly joining Singapore’s GIC and U.S. investor Coatue in a massive funding round for Anthropic, the maker of the Claude chatbot. This latest round aims to raise $25 billion at a projected valuation of $350 billion.
According to the Financial Times, Singapore’s sovereign wealth fund GIC and Coatue are expected to contribute $1.5 billion each to the round. This follows a significant year for the startup, during which it secured commitments of up to $15 billion from tech giants Microsoft and Nvidia. The current round is expected to close within the next few weeks, though deliberations are ongoing and final amounts could change.
The surge in valuation reflects an insatiable global demand for AI and growing enterprise adoption, which has pushed tech spending and startup valuations to record levels despite looming concerns regarding an AI bubble. Anthropic was founded in 2021 by former employees of OpenAI. Its last major funding was a $13-billion Series F round in early September 2025, which valued the company at $183 billion.
For Sequoia, founded in 1972, this move aligns with its history as an early investor in era-defining tech names such as Google, Apple, Cisco, and YouTube. Anthropic, Sequoia, GIC, and Coatue did not immediately respond to requests for comment regarding the report.
Bank margins to hold in Q4
Private sector banks are signalling that net interest margins (NIMs) are likely to remain resilient in the March quarter, even as the Reserve Bank of India’s (RBI’s) 25-basis-point repo rate cut from last month begins to transmit more fully into lending rates. Management commentary suggests that margins will be cushioned by several factors, including a lag in deposit repricing, a higher share of low-cost current account savings account (CASA) funds, and more selective lending.
HDFC Bank, which saw its NIM on total assets expand by 8 bps sequentially to 3.35 per cent in the three months ended December, indicated that the full impact of the latest rate cut is yet to be felt completely. Chief financial ocer Srinivasan Vaidyanathan noted that a decline in the cost of funds of about 10-11 bps supported these margins.
ICICI Bank struck a cautious but steady tone, expecting NIMs to remain range-bound given the repricing of external benchmark loans and competitive intensity. India’s second-largest private sector lender reported a NIM of 4.3 per cent in Q3 FY26, which was unchanged from the previous quarter.
At RBL Bank, management pointed to their portfolio mix and fixed-rate loans as buffers against immediate margin compression. RBL Bank’s NIM rose to 4.63 per cent in the December quarter from 4.51 per cent in the previous quarter. Managing director R. Subramaniakumar stated that their fixed-rate loan composition (around 40-45 per cent) will help hold yields, while falling deposit costs will provide more headroom starting in Q4.
While some sequential improvements were noted across the sector, analysts at Bernstein flagged that some lenders reported flat margins that trailed broader system trends. However, the general industry outlook remains that NIMs will stay cushioned due to the ongoing repricing cycle on the deposit side.
Ready for passive investing? Here is how to kick-start your portfolio
Passively managed funds offer investors a low-cost way to participate in markets, with expense ratios significantly lower than those of actively managed funds. By tracking the same indices used as benchmarks by active funds, they eliminate the risk of underperforming the benchmark. As of September 30, India had 268 exchange-traded funds (ETFs) and index funds tracking over 100 different indices, including market-cap-weighted, sectoral, thematic, and factor-based strategies.
A Simple Approach for Beginners
Advisors recommend that beginners start with a simple, large-cap-oriented equity portfolio. For those comfortable skipping mid- and small-caps, a Nifty 50 or Nifty 100 index fund is considered a sufficient starting point. Beginners might also consider combining the Nifty 50 Index with the Nifty Next 50 Index; the latter provides a "flavour of mid-caps" despite being a large-cap fund. While broader indices like the Nifty 500 offer wider market exposure, they tend to be more volatile. To mitigate costs during such volatility, experts suggest building exposure through Systematic Investment Plans (SIPs).
Strategies to Avoid
Experts warn new passive investors to avoid sector-based, theme-based, or factor-based strategies. Many "smart-beta" or factor strategies lack a real-market track record with adequate trading volumes, even if they appear attractive in back-tested data. For example, low-volatility indices are often misunderstood; they can still fall more than the Nifty 50 during certain market phases. Narrow sectors and thematic ideas should be avoided unless the investor deeply understands those specific dynamics.
Index Funds versus ETFs
New investors are generally advised to opt for index funds over ETFs. While ETFs allow for intraday trading, they require a deeper understanding of bid-ask spreads, trading volumes, and indicative net asset values (iNAV). ETFs can sometimes trade at significant premiums or discounts to their fair value due to liquidity constraints, as seen recently with several silver ETFs. In contrast, index funds offer simpler end-of-day NAVs and are better suited for monthly SIPs.
Key Takeaways for Asset Allocation
Passive funds simplify investing by removing fund manager risk, as investors do not need to identify a specific manager to deliver outperformance. Beginners should:
- Stick to simple investment strategies with established credit market track records.
- Prioritize large-cap strategies where the high liquidity keeps impact costs low.
- Use passive funds for core asset allocation, potentially combining a Nifty 50 Index with a US-based index or ETF for international exposure, alongside gold and debt-based passive options.
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