Indian Stock Market Faces Fresh Pressure as IT Sector Q3 Earnings Reflect Impact of New Labour Code, The Indian stock market has entered a decisive phase with the start of the Q3 earnings season, and early results from the Information Technology (IT) sector are shaping investor sentiment. As one of the heaviest contributors to benchmark indices, the IT sector often sets the tone for broader market direction.
This quarter, however, attention has shifted away from deal wins and revenue growth to a more structural issue: the financial impact of India’s New Labour Code on corporate balance sheets.
Market participants note that while demand conditions remain stable, compliance-driven costs under the New Labour Code have materially affected profitability, particularly for large IT services companies.
New Labour Code in India: Key Highlights.
The New Labour Code represents a structural reform, not a temporary regulation. For businesses and investors, it changes how workforce costs are measured and managed—shifting the focus from short-term flexibility to long-term compliance and transparency.
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Consolidation of Labour Laws
India’s New Labour Code simplifies the regulatory framework by consolidating 29 central labour laws into four comprehensive codes—covering wages, industrial relations, social security, and occupational safety. The objective is to reduce complexity, improve compliance, and create uniform labour standards across sectors. -
Revised Gratuity and Employee Benefit Provisions
The New Labour Code introduces clearer and stricter norms around gratuity, leave encashment, and social security liabilities. Companies are required to reassess and adequately provision long-term employee benefits, leading to higher upfront compliance costs, especially for large employers. -
Higher Compliance and Accounting Transparency
Employers must now maintain more accurate, real-time accounting of employee-related liabilities. This has increased transparency but also forced companies to recognize obligations earlier, resulting in one-time exceptional charges in sectors with large workforces, such as IT and manufacturing. -
Expanded Social Security Coverage
The New Labour Code extends social security benefits to contract workers, gig workers, and platform workers, significantly broadening the employee protection net. While socially progressive, this change increases long-term cost responsibilities for employers. -
Short-Term Cost Pressure, Long-Term Structural Reform
While the New Labour Code has created short-term margin pressure for companies due to compliance-driven adjustments, it is designed to deliver long-term workforce stability, improved governance, and predictable labour relations, which could benefit the economy and employers over time.
New Labour Code Triggers One-Time but Significant Cost Adjustments
During Q3, provisions under the New Labour Code related to employee benefits came into practical effect. Companies were required to reassess and regularize long-standing liabilities linked to:
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Gratuity obligations
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Leave encashment provisions
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Employee benefit accounting standards
As a result, leading Indian IT firms collectively reported exceptional charges exceeding ₹4,373 crore, impacting reported profits despite relatively stable operating revenues.
According to technology and market analysts, including advisory firms such as Sidigiqor Technologies, these costs are mandatory compliance adjustments, not operational inefficiencies—yet they directly affect near-term earnings and margins.
IT Majors Disclose Heavy Exceptional Charges in Q3
Infosys
Infosys disclosed additional expenses of more than ₹1,289 crore in Q3 under exceptional items. The company attributed these costs to revised employee benefit provisions aligned with the New Labour Code.
This adjustment led to noticeable pressure on operating margins and weighed on investor sentiment.
Tata Consultancy Services (TCS)
TCS reported the largest exceptional charge, amounting to approximately ₹2,128 crore. Of this, nearly ₹1,800 crore was spent on regularizing its gratuity fund in accordance with the New Labour Code.
Despite the size of the adjustment, TCS managed to maintain operational stability due to scale and disciplined cost management.
HCL Technologies
HCL Technologies announced exceptional costs of around ₹956 crore, also linked directly to compliance with the New Labour Code.
With multiple IT majors reporting similar adjustments, analysts agree that the impact is sector-wide rather than company-specific.
Margin Compression Becomes the Central Concern
The immediate consequence of these New Labour Code–related adjustments has been compression in operating margins, a key metric for IT stock valuations.
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TCS maintained an operating margin of around 25.2%, still healthy but under pressure compared to historical averages.
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Infosys saw a sharper decline, with margins falling from around 21% to approximately 18.4% in Q3.
While revenues remained largely intact, the drop in profitability has increased scrutiny around margin sustainability in a period of cautious global IT spending.
Market observers, including analysts at Sidigiqor Technologies, note that Indian IT stocks are particularly sensitive to margin movements, making regulatory cost shocks a major trigger for stock price volatility.
Market Reaction: Why IT Stocks Remain Under Pressure
Indian IT stocks have been under sustained pressure since September 2024, and Q3 earnings have reinforced investor caution:
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Global enterprises continue to delay discretionary IT spending
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Indian IT firms remain largely services-led, with limited product or IP-based revenue
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R&D and AI-led investments remain modest compared to global peers
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Compliance and workforce-related costs are becoming structurally visible
In contrast, US technology stocks have seen strong rallies driven by AI platforms, cloud infrastructure, and product innovation, widening the performance gap between Indian and global tech markets.
Structural Adjustment, Not a Demand Breakdown
Industry analysts and consulting firms such as Sidigiqor Technologies emphasize that the current earnings pressure reflects a structural adjustment driven by the New Labour Code, rather than a collapse in demand.
Most of these expenses are expected to be one-time in nature, but they highlight the need for IT companies to balance:
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Regulatory compliance
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Cost efficiency
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Investment in AI, automation, and cybersecurity
Failure to evolve could leave margins vulnerable in future cycles.
Commenting on the trend, the CEO of Sidigiqor Technologies said:
“The Q3 earnings season clearly shows how the New Labour Code has reshaped cost structures for IT companies. These are compliance-led adjustments, not operational failures, but their short-term impact on margins is undeniable.”
“Investors should focus on balance-sheet strength, adaptability, and a company’s ability to move toward higher-value, AI-led services. Short-term volatility should not be mistaken for long-term value erosion.”
What Investors Should Track Next
As earnings season continues, investors are expected to closely watch:
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Whether New Labour Code–related costs remain one-time adjustments
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Management guidance on margin recovery
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Increased focus on AI, automation, and high-value digital services
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Demand signals from the US and European markets
The Indian IT sector is navigating a transition shaped by New Labour Code compliance, margin pressure, and evolving global demand. While Q3 results reflect short-term stress, the long-term outlook will depend on how effectively companies absorb regulatory changes and reposition for innovation-led growth.
For investors, this phase calls for measured analysis rather than reactionary decisions, as the sector adapts to a new operating reality.
Sidigiqor Technologies OPC Private Limited operates with a strong commitment to full compliance with India’s New Labour Code and all applicable government labour laws. The company follows structured HR policies, transparent payroll systems, and lawful employee benefit provisions in line with statutory requirements.
Sidigiqor believes that legal compliance is not optional but foundational to sustainable growth and trust—both with employees and clients.
Sidigiqor Technologies delivers end-to-end technology and consulting services, including:
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IT Infrastructure Development & Management
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Computer AMC and IT Support Services
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Cybersecurity Consulting & Compliance Advisory
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Website Design & Development
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Digital Marketing Services
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Software & Mobile Application Development
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IT Facility Management Services (ITFMS)
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CCTV Camera Installation and AMC Services
All services are delivered while adhering strictly to government regulations, labour laws, and ethical business practices.
The New Labour Code marks a significant step toward structured, transparent, and accountable employment practices in India.
Companies that proactively align with these reforms—such as Sidigiqor Technologies—are better positioned to build resilient operations, compliant workforces, and long-term stakeholder trust.
