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As the Indian IT services sector battles a slowdown in the US, coupled with global macroeconomic uncertainty, industry experts are expecting that hiring will also remain muted, despite a strong pipeline of deals.
Research firm ICRA, in its note, said the hiring is expected to remain slow in the next two to three quarters. This implies that hiring will be in the slow lane even in the first quarter of FY25. While the hiring slowdown has been reported in the sector, recruiters were hoping that companies would hit campuses for off-campus recruitment.
“Between Q2 FY2023 to Q2 FY2024, ICRA’s sample set companies recorded a net decrease of 49,606 employees (compared to a net increase of 245,248 during Q2 FY2022 to Q2 FY2023). This is because the companies have not completely
backfilled the attrition and have focused on improving employee utilisation amidst a weakened demand environment,” said the ICRA note.
On the campus hiring trend, Kamal Karanth, co-founder, Xpheno noted that the IT sector could collectively clock way below 100,000 fresher and entry-level additions this FY.
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“Every 10k freshers onboarded translates to a Rs 400 crore top-up to the compensation cost. Add to this, the overheads involved, and it is evident that one cannot go to campus amidst adversities and market uncertainties. With enterprises tackling margin pressures and waiting it out for visibility of revenue and returns, campus action will remain in the simmer for the upcoming placement cycle,” Karanth said.
The top five IT companies hit a record hiring of 273,000 employees in FY2022 and another 94,400 employees in H1 FY2023.
Owing to the uncertain macroeconomic environment in key markets of the US and Europe, ICRA expects the revenue growth of the Indian IT services industry to moderate to 3-5 per cent in FY2024 in USD terms versus 10 per cent in FY2023. The slowdown is expected to persist for another couple of quarters, leading to an overall slowdown in hiring in the industry.
However, the net negative employee addition in the last few quarters has allowed companies to maintain their employee costs and profit margins.
“Employee cost as a percentage of operating income for Indian IT services companies has increased steadily in the recent years from around 54 per cent in FY2021 to almost 58 per cent in H1 FY2024. While this has exerted some pressure on profit margins, major IT services companies have been able to mitigate the impact to some extent through increased operating efficiencies,” said the ICRA report.
With macro challenges still evident and delays in decision-making by clients, ICRA expects that the revenue growth for its sample set of Indian IT services companies is expected to moderate to 3-5 per cent in FY2024 from 9.2 per cent in FY2023.
“ICRA expects revenue growth to improve in FY2025 to about 6-8 per cent, supported by a strong order book and deal pipeline for the majority of the industry players. We expect the OPM to moderate by Rs 70-100 bps to Rs 20-21 per cent in FY2024 versus 21.7 per cent in FY2023, owing to lower operating leverage. However, the OPM will remain healthy, with some improvement likely over the medium term, supported by stabilisation of wage costs with optimisation of employee pyramid and employee utilisation,” said the report.
Previous low years of freshers intake. Count of freshers hired by the end Fiscal:
FY2021 - 85000
FY2019 - 104000
FY2018 - 88000
FY2010 - 80000
FY2002 - 73000
Source: Xpheno
