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IT Falters, RE Stutters, Auto Flutters

Reuters thinks this is the end of IT Staffing as we know it. They quote a changing scene in IT, with headcount being shrunk while profits and revenues are increased – a sign that the business is lower margin than it seems. Projects are harder to come by, and require lesser of the “fresher” population and more of the experienced “lateral” junta. However, it seems like project sizes have shrunk as well, as it seems to have become quite difficult for middle-management people to find new positions.

Hearing the woes of freshers breaks my heart; those that had been given campus jobs in 2011 for when they graduated in 2012, and still have only seen postponements of joining dates. I was like them – a company had offered me a job on campus in 1995, only to send me a letter in 1996 that my joining date was delayed 3 months because they had divided the joinees into two batches. After they snubbed my efforts to substitute with a non-joiner in Batch 1, I told them to go take a hike, and joined a smaller company that paid half, but where I could join immediately. Anyhow, it sucks to have a job but not a paycheck.

Real estate seems to have been impacted. Commercial space has been hit, says TOI, with:

Figures provided by two property consultants — Cushman & Wakefield and DTZ — show that absorption of office space in 2012 across the top eight Indian cities stood at 29.05 million sq ft, a 23% decline over the previous year. Of this, the share of the IT sector, which accounted for 64% of the commercial space absorbed in 2009, dropped to 44% in 2012 at 13.22 million sq ft. It was 16.08 million sq ft in 2011.

Commercial rentals are one thing; the other worry is residential, where ownership has been backed, in many cities, by the rising tide of the IT industry. With a slowdown will people buy less? Will people upgrade less? Already, too many projects are delayed – and they will get seriously delayed if people aren’t paying up.

And of course, automobiles. Already, auto sales growth have been the lowest in a decade or so, and as jobs stagnate, will people stop buying new cars in the immediate future?

A slowdown will be good to both correct price anomalies and to increase the likelihood of a great longer term future for both jobs (why only IT?) and other industries.

  • Statspotting says:

    There are multiple things at play here. I guess the primary risk of a single point of failure (IT) is just beginning to play out.
    The companies per se would do more than okay – they have been building up buffers for over three decades now. The real issue would be the secondary impact – and housing is a prime candidate.
    In the western markets, high paying jobs come with the risk of being without a job for some time. India is an exception, by operating at a lower cost spectrum, has had high paying jobs with stability (getting fired is even now unheard of). We are not suggesting that it is a good thing for that to happen: we are only suggesting that a low risk high return scenario never lasts long.

  • Sanjay says:

    Economy is big elephant. All of us, individually, are touching just a part. And in India, black economy and social support plays a part. So we don’t know what will be impact if IT cools down. IT is good paymaster. But it is not the only paymaster.
    What if I say that nobody is buying RE from indian earnings? What if I say, that people earning in USD are investing in RE and keeping the prices high? What if I say that it does not matter to them whether price of apartment in India is 25 lacs or 33 lacs? They might be just wanting some ‘diversification’. And sitting in US, they cannot judge value of the property.
    RE is overheated. That is true. That is obvious from the fact that annual rental is in the range of 3 to 5 % of purchase price.

  • Ravi Shankar says:

    My submission is that capital valuation is much more sensitive to rental yields in a down market, because the kicker of price appreciation is missing, in-fact there is a risk of price drop. So naturally the owner would like to be compensated better with a higher yield. The adjustment process should go on for a few years, don’t see a bottom till 2016 at the earliest. But a correction is coming and its going to be nastier than 2008-09. The average net rental yield of a property is close to 3%. Now if it were to adjust to 5%, the capital value of the asset should drop to 3%/5% X 100 = 60% or a 100 Rs property would be revalued at 60 Rs a 40% drop in price. If rentals go down or vacancy goes up, there is some serious problem in the RE sector. I am waiting and watching !