IT hiring likely to remain muted as growth slows down

The COVID-19 outbreak increased the demand for digitisation, resulting in a significant mismatch between demand and availability of digital tech expertise in the Indian IT services business, according to a report by ICRA. As a result, industry participants increased hiring, leading to record net staff additions in fiscal year 2022 (FY22) and H1 FY23.

Concurrently, the industry's attrition rate climbed to 22-23 per cent due to increased demand for talent.

Indian IT service providers anticipated that the increased demand for their services would continue. The top five players in the industry hired a record 273,000 people in FY22 and another 94,400 employees in H1 FY23. However, macroeconomic challenges in the key markets of the US and Europe have resulted in a slowdown in demand for IT services since H2 FY23. As a result, companies have hired fewer employees in the last four quarters, as they were able to meet demand with manpower added in FY22 and H1 FY23.

Due to growing pay expenses and slower revenue growth in an uncertain macroeconomic climate, the labour cost as a proportion of revenues for ICRA's sample set climbed to 57.6 per cent in H1 FY24 from 54.5 per cent in FY22. This resulted in a 260 basis point (bps) decrease in operational profit margin (OPM) for these companies.

However, ICRA expects the situation to stabilise soon, owing to lower hiring and wage rises.