BENGALURU: Amid slowdown in demand and companies focusing on maintaining their profitability, hiring in IT services companies to remain muted in the next two to three quarters. Rating agency ICRA points out demand slowdown, reduction in attrition levels and excessive hiring in FY22 and H1FY23 as the major reasons for slowdown in hiring in the Indian IT services industry.
It says that Indian IT services companies continue to utilise the excess capacity added in FY22 and H1FY23. The freshers recruited then are now getting utilised, leading the company to not backfill the attrition to an extent. As the IT services companies expected accelerated demand for their services, top five companies hired record numbers- nearly 273,000 employees in FY2022 and another 94,400 employees in H1 FY2023.
However, the macro-economic challenges in the key markets of the US and Europe resulted in a slowdown in demand for IT services since H2 FY2023, and thus companies have hired fewer employees in the last four quarters, as they were able to meet demand with manpower that had been added in previous fiscals, ICRA pointed out.
Tata Consultancy Services (TCS), Infosys and HCLTech cumulatively reduced their workforce by 25,000 in the first six months of this fiscal year. In Q2 alone, these companies reported a decline of 16,162 employees. ICRA expects hiring to remain muted with marginal improvement in net addition in H2 FY2024 as companies continue to focus on improving employee utilisation to maintain their profit margins amidst expected continued slowdown in revenue growth. However, the attrition is on a declining trend since Q3 FY2023 as it is about 14% as of September 2023 compared to 23% as of September 2022.
The revenue growth of Indian IT services companies is expected to moderate to 3-5% in FY2024 from 9.2% in FY2023 owing to persistent uncertainty in key markets resulting in delay in decision-making by customers. ICRA expects revenue growth to improve in FY2025 to about 6-8%, supported by a strong order book and deal pipeline for the majority of the industry players.
Companies continue to utilise excess capacity
ICRA points out demand slowdown, reduction in attrition levels and excessive hiring in FY22 and H1FY23 as the major reasons for slowdown in hiring in Indian IT services industry. It says Indian IT services companies continue to utilise the excess capacity added in FY22 and H1FY23