Cos in fiscal discipline mode amid slowdown

Cost saving is the buzzword in a slowing economy. As the world's large economies go through a slowdown, businesses are tightening their belts. In the technology industry, which has suffered the most because of the downturn, CIOs are no longer calling the shots. In a way, they have made way for the CFO, (Chief Financial Officer), which is delaying the decision-making process and leading to cost cutting measures. No wonder, all global technology companies have announced a slew of moves to reduce cost by cutting the headcount. More than 1.7 lakh employees have lost their jobs as about 600 tech firms, including Meta, Google and Amazon, among many others, have laid-off staff. Ironically, even software services and consulting major Accenture reduced its headcount by 19,000 employees. This is despite the fact that the growth outlook of the company doesn't look as bad.

For Indian IT firms, there is now clear indication that hiring will be subdued in FY24. Startups in the SaaS space are the worst affected. With no end in sight to the ongoing funding winter along with slowdown in key markets like the US and Europe, SaaS players are facing revenue crunch. Individual and organisation users are cutting down on subscriptions. CFOs are taking decisions on what to spend on and how much, consequent to which many discretionary spends have taken a backseat. Under the circumstances, it looks like companies are making long runways for survival.

Capital allocation carries a special importance during any downturn. Apart from reducing cost through reducing employee count and holding back on discretionary spend, other measures are being leveraged. For instance, all the experimental projects and new initiatives are facing the axe. Disney and Microsoft have shut down units developing metaverse applications. Meta is now keen on artificial intelligence than its metaverse-related experiments. Similarly, many projects related to web 3 are on a backburner. Blockchain-powered NFTs (non-fungible tokens) ventures are going nowhere. Similarly, many other technology initiatives are getting shelved as enterprises are more willing to invest in immediate RoI (return on investment) projects. Apart from holding back on new initiatives, plans of share buyback, higher dividend and bonus share issue sort of plans are taking a backseat. Investors should expect that enterprises may not be very forthcoming in pleasing shareholders given the focus on capital conservation. Similarly, salary increments, bonuses and other out of turn incentives are likely to be very rare this year. This is especially so for the technology industry. Meanwhile, companies continue to look for good acquisition opportunities. Given valuations are at a realistic level, cash-rich companies are keen to seize the opportunity for capacity building. As slowdown plays out in full swing, companies are expected to innovate in cost-savings domain. Though the going gets tough, there is a silver lining. It imposes discipline with regard to capital among businesses, which was forgotten during their heyday.