As Cognizant and Infosys loom under pressure, could this be a warning sign that India's IT story is about to end?

Two large Indian firms which are struggling to keep their businesses intact right now are Infosys and Cognizant, the latter being a US based multinational which only has manpower and development centers in India.

Some weeks ago, a serious allegation was made by a whistleblower in Infosys' finance dept to the SEC about unethical and improper accounting practices, and speculations have been high about the future prospects of Infosys since then. Many employees are literally spooked and hoping that this shouldn't turn out to be another Satyam scandal of 2009.

On the other hand, speculations were also ongoing that Cognizant, another popular name in Indian tech sector, was about to layoff 7000 employees. Well, their CEO Brian Humphries has spoken yesterday and indeed, people are going to be fired in at least some areas and the number could well exceed 7000.

Considering that these two are very large Indian IT companies, there are also concerns about how long is India's IT story going to continue. All business activity happens in cycles, there are also cycles within cycles just as there are sectors within the main economy and industries within the sector. The Indian IT business cycle which is about two decades old now (began around Y2K phenomenon in 2000) could be facing its first sign of exhaustion.

About 10 years ago, the average on-campus joining package in companies like Infosys and Tech Mahindra was about 2LPA which is about 3.5LPA today. The question is, are such large salary packages sustainable in the long run, especially considering that they hire such large number of people? Maybe it was sustainable until some years ago when only a handful of companies like Infosys and TechM ruled the show but times have changed now!

On the supply side, many other smaller firms and even startups have cropped up in cities like Mumbai and Bangalore which have been steadily eating the clientele of these large players. Besides, freelancing has also emerged as a new supply block for software services in the last decade. Globally, India ranks second largest in size of the freelancing workforce, about 50% of all Indian IT workers are expected to go freelance by 2020.

And besides, India isn't the only supply block for freelancers, neighboring countries like Bangladesh, Pakistan, Myanmar, Sri Lanka, etc. are all competing for the global pie in the freelance IT market and many of them are highly skilled experts.

All the above factors have slowly and steadily diminished the importance of traditional IT companies like Infosys and Tech Mahindra. These companies will have to struggle hard in coming days to reduce their overhead expenses and even perform huge number of layoffs (which is quite difficult in a country like India!) if required. Otherwise, it'll become difficult for them to survive and unlike telco companies like Idea or Vodafone, there is no such pressure on the government to bail out these IT companies!