IT companies in India, including TCS, Infosys, HCL Tech and Wipro, have hired fewer employees in the past four quarters, due to demand slowdown, reduction in attrition levels and excessive hiring during the pandemic, according to a report by ratings agency ICRA. It said the hiring is likely to remain muted over the next two-three quarters amid slowing growth.
However, the average last twelve-month (LTM) attrition for IT companies declined to 14 per cent as of September 2023, against 23 per cent a year ago, ICRA said.
“The Covid-19 pandemic increased demand for digitisation in the Indian IT services industry, leading to record hiring and attrition rates. The top five companies in the industry hired 273,000 and 94,400 employees in FY2022 and H1 FY2023, respectively. However, ICRA found that the macro-economic challenges in the US and Europe have caused a slowdown in demand, resulting in fewer hiring in the last four quarters,” ICRA said in the report.
On decline in attrition, it said this is due to the resolution of the demand-supply mismatch experienced by the industry amid accelerated demand during the pandemic. “With a slowdown in growth in recent quarters, employee turnover rates have also reduced considerably.”
ICRA expects hiring to remain muted over the next two-three quarters amid a slowdown in demand, with companies focusing on maintaining their profitability in the backdrop of lower revenue growth.
“The revenue growth from the US (58-60 per cent of the industry’s revenues) witnessed a sharp moderation in recent quarters as macroeconomic headwinds continue to intensify coupled with instability in the banking sector in the US, which is a key vertical for the Indian IT services companies, leading to lower technological spending, especially towards discretionary and non-critical transformation programmes,” ICRA said in the report.
In Europe, according to the report, the growth has also witnessed moderation, though it has remained more resilient compared to the US in the last few quarters, supported by healthy deal execution in the UK as reported by some of the industry players.
“The employee cost as a percentage of revenues for IT companies increased to 57.6 per cent in H1 FY2024 from 54.5 per cent in FY2022 due to rising wage costs and slower revenue growth in an uncertain macroeconomic environment. This led to a moderate 260 bps decline in operating profit margin (OPM) for these companies. However, ICRA expects the same to stabilise in the near term, supported by relatively reduced hiring and lower wage increases,” the report said.
The ICRA report is based on data from four IT companies — Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro.
During the September 2023 quarter, TCS’ headcount fell by 6,333. Its total number of employees as of September 30 this year stood at Rs 608,985, compared with 6,15,318. Its IT services attrition on the last-twelveth-month stood at 14.9 per cent during the September 2023 quarter, which is lower than in previous quarters.
Infosys’ total employee strength declined to 3,28,764 as of September 2023 from 3,36,294 in the previous quarter, a decline of 7,530 in headcount. Infosys’ IT services attrition on a twelve-month basis declined further to 14.6 per cent.
HCL Technologies’ total headcount also declined during July-September 2023 and stood at 2.21 lakh at the end of the quarter. It is a decline of 2,299 employees from the previous quarter. HCL Tech also saw attrition ease to 14.2 per cent.
Wipro’s attrition rate also continues to moderate on a quarterly basis, coming in at a 9-quarter low of 13.4 per cent in the second quarter of 2023-24.
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