Hiring in Indian IT services industry to remain muted over next 2-3 quarters

Hiring in the Indian IT services industry is expected to remain muted over the next two-three quarters amid slowdown in demand, with companies focusing on maintaining their profitability in the backdrop of lower revenue growth, a new report showed on Monday.

The Indian IT services companies hired extensively over the second quarter of FY2021 to the second quarter of FY2023, as demand for digitalisation accelerated following the Covid-19 pandemic, according to the report by credit rating agency ICRA.

Simultaneously, the attrition rate in the industry also intensified to 22-23 per cent due to the increased demand for talent. This led to a record hiring of 273,000 employees in FY2022 and another 94,400 employees in H1 FY2023 by the top five companies in the industry.

“However, from Q3 FY2023 onwards, the overall demand environment for IT services weakened due to uncertainty in the global macroeconomic environment,” according to the report.

This led to negative employee net addition during this period, as companies reduced hiring and focused on improving overall utilisation levels.

This has helped companies maintain their employee cost and profit margins in the recent quarters.

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 owing to the uncertain macroeconomic environment in key markets i.e the US and Europe.

“The slowdown is expected to persist for another couple of quarters, leading to overall slowdown in hiring in the industry,” said the report.

The attrition rate has declined in recent quarters, which has helped reduce the demand-supply mismatch in the industry, it added.

“Indian IT services companies continue to utilise the excess capacity added in FY2022 and H1 FY2023. The freshers recruited then are now getting utilised, leading the company to not backfill the attrition to an extent,” the report added.