You walk up a mountain to look at your ancestral tea farms. It’s a lush green embankment next to a stream of water. Everything looks great. However, over the last few years, you’ve heard land slippages in the neighbouring farms, but none in your farm — you trust your silver oaks to hold on to the soil. Just then, there is a landslide, and it wipes out your entire topsoil and its crops. You trusted those silver oaks, but they were buying you time to make you less prepared.
Every unexpected event reinforces certain trends — a shake-up that reveals the underlying truth.
Working from home will be the new normal for a majority of the IT workforce. It’s better on the margins, and it’s better for the majority if you cut the commute — a win-win.
IT firms have started to vacate rented buildings at all major IT parks. They plan to open supervising hubs, or controlling offices in smaller buildings. By 2025, only 25% of TCS’s workforce will need to come to work — this echoes across several Silicon Valley bigwigs as well.
Sometime in May, NASSCOM and 2,800 other IT-related members approached the government to abolish several labour laws to suit working from home — NASSCOM will share a blueprint of this amendment soon. Secondly, they also requested a change in the Income Tax Act to include expenses borne by employees at home, primarily to cover insurance for working from home.
The entire industry is enabling 75–90% of its employees to work from their homes.
You made it out of the landslide, but your entire farm is under thick mud. You spend the next entire year recreating everything along with other farmers. But, you don’t cultivate the whole area, because you fear a repeat landslide.
Long term economic expectations are lower than ever now; this leaves only one option for businesses — to stop investments and cut costs. The immediate reaction is to cut jobs, and we’ve seen this across sectors. As firms try to stay nimble, the medium-long term trend will remain fewer jobs, coupled with lower salaries and lower salary growth. Many job seekers for fewer roles.
Monster.com has a category for COVID impacted roles where they have over 1.8 million job-seekers
Consider two categories of IT professionals — CAT 1 senior professionals with their own home or home loans in major metro hubs, and CAT 2 unmarried junior professionals living in rented accommodation.
CAT 1 professionals will face the brunt of lower salaries and even lower (or negligible) salary growth. A modest reduction in home loan rates will help, but inflation will continue to bite into their savings every year.
CAT 2 professionals will relocate to their hometowns, as firms will benefit with lower CTCs and no office real-estate
It is no more a smoking gun — according to CRISIL, nearly 68% of all firms announced either job cuts or cut salaries. While Cognizant announced layoffs, TCS maintained the status quo to honour recruitment commitments at the junior level — the CAT 2 level.
A large section of the CAT 1 group is staring at little or no savings after home-loan EMIs. Secondly, rental yields will remain suppressed as people vacate properties and move to their home towns. Even without new homes, this creates more capacity across major IT hubs.
Families with expensive homes will see limited value in continuing with their EMIs as their home value plunges. Many would shift to another home at a lower EMI or take up a rental property. Homes held as investments will see declining rents. Both of these will lead to a distress sale of old properties at low prices.
Yes, real-estate is volatile. All of us have finally seen it together.
As a result, we could see families rush to safety, and pile-up fixed deposits, but this ends up counterproductive as fixed deposits don’t beat inflation — that silver oak only gives you a false sense of security.
With low salary growth, you need to invest to beat inflation systematically. An allocation to equity is an option that families need to consider.
To tide this wave, professionals, especially CAT 1, need to focus on four things:
Cut expenses to create more savings is key to sustaining this period.
Create a small bucket for emergency expenses, typically 3-months of expenses
Avail a loan only when necessary — tap PPF and other investments.
After this, if you have savings, then invest across equity, fixed income (other than FDs) and gold.