Irrational exuberance pulled IT companies down in FY23: NASSCOM chairman

Irrational exuberance due to the unprecedented situation after the pandemic’s outbreak led to disappointment for Indian IT services industry in financial year 2022-23 (FY23), while delayed decision-making from customers was adding to uncertainties, said Krishnan Ramanujam, chairman of Nasscom.

Nasscom, which represents the Indian tech industry, defined 2023 as “priming for a no normal future” in its strategic review. According to the report, the industry may see an incremental increase in net revenue estimated at $19 billion this financial year, against $30 billion in FY22.

“A lot of irrational exuberance happened in FY23 and companies really tanked up thinking that this year is going to be a blockbuster. The Ukraine war happened and the year did not turn out to be as fantastic as we all hoped when the year began,” Ramanujam told Business Standard.

He added: “I don’t think the situation is going to go back to the euphoric levels that we saw 12 months ago. But the demand is still better if we compare it with pre-Covid levels. At present, there is a bit of a lukewarm outlook. But I think when demand comes back it will be reasonable.”

Delayed decision-making, economic uncertainty, and inflation along with demand contraction in some markets are expected to be the major headwinds for the sector. On the other hand, projects related to efficiency were getting frontloaded, which is good news for Indian IT firms.

Ramanujam said: “What we are hearing from many member companies is that there is a lot of caution (from customers). Most businesses are just recovering from the Covid-related impact, whether you take retail, hotels, airlines, or even banks. Inflation is not coming under control. There is a lot of hesitation, essentially resulting in a lack of clear decision-making,” he said.

According to him, stalling of discretionary projects by customers was forcing companies to introduce measures to safeguard margins and leading to delays in onboarding and other negative things.

Some of India’s leading IT players have deferred onboarding of freshers hired in FY23 and who completed their training. In an unusual development, Wipro asked entrants who were earlier offered Rs 6.5 lakh per annum if they would be willing to get onboard for a revised annual compensation of Rs 3.5 lakh.

Debjani Ghosh, president of Nasscom, said: “The talent acquisition and retention strategy is one of your biggest differences giving competitive advantage. Therefore, we are not going to see the industry come together to decide on this. Fresher hiring has gone up, pre-Covid it used to be around 40 per cent of total hiring. Today our industry’s fresher hiring stands at 70 per cent of total hiring.”

Nasscom’s review indicates that the industry remains a net employer, with a workforce of over 5.4 million, creating 290,000 new jobs in FY23.

Ghosh said: “When you look at our fresher hiring salaries versus other industries, definitely we are higher than what other industries are paying. The career progression, salary hikes and the pace at which it happens is much faster in our industry”

According to the strategic review, chief executive officers (CEOs) are “cautiously optimistic” about FY24 because of headwinds such as demand contraction, emerging tech regulations, skilling gaps, and delayed decision-making. Still, it expects industry revenue to touch $500 billion by 2030.

Ramanujam said the industry’s potential should be analysed with a long-term view. “I am very confident that in any three- or five-year period, investments and growth will be very healthy. There is no doubt about that.”