The Indian IT services industry is poised for a subdued hiring scenario in the upcoming two to three quarters, reflecting a slowdown in demand as companies pivot towards sustaining profitability amidst reduced revenue growth, as per a recent report by credit rating agency ICRA.
Notably, the surge in demand for digitalization following the Covid-19 pandemic prompted substantial hiring by Indian IT services firms from the second quarter of FY2021 to the second quarter of FY2023. This fervent hiring spree was accompanied by a surge in attrition rates to 22-23 percent due to the amplified need for talent acquisition. This resulted in record-breaking recruitment of 273,000 employees in FY2022 and an additional 94,400 employees in H1 FY2023 by the top five companies in the sector.
However, the demand landscape for IT services weakened from Q3 FY2023 onwards, precipitating negative net employee additions. Companies scaled down hiring efforts and concentrated on augmenting overall utilization levels in response to the uncertainty prevailing in the global macroeconomic environment.
This strategic shift aided companies in maintaining their employee costs and profit margins in recent quarters.
ICRA projects a moderation in revenue growth for the Indian IT services industry to approximately 3-5 percent in FY2024 (in USD terms), a stark contrast to the 10 percent growth observed in FY2023. This moderation is attributed to the uncertain macroeconomic landscape in crucial markets like the US and Europe.
The report highlights an anticipated continuation of the slowdown, influencing a decline in hiring activities across the industry for the foreseeable future. While the attrition rate has shown a decline in recent quarters, mitigating the demand-supply gap in the sector, companies are utilizing excess capacity from the FY2022 and H1 FY2023 hires. This utilization of freshers recruited during that period has contributed to the adjustment, reducing the need for extensive backfilling due to attrition.
(With Agency Inputs)