Mint Primer: Could FY24 turn out to be a bleak year for IT hiring?

Head hunters  note sporadic hiring mandates from the IT sector and predict it could take at least two more quarters for hiring to restart (HT)
Head hunters note sporadic hiring mandates from the IT sector and predict it could take at least two more quarters for hiring to restart (HT)

Summary

  • Demand for IT services has slumped amid a global slowdown. India’s IT companies have, therefore, clamped down on their hiring plans

Demand for IT services has slumped amid a global slowdown. India’s IT companies have, therefore, clamped down on their hiring plans. In fact, FY24 could turn out to be the worst year for IT sector hiring in a long time. Mint explains.

What is the hiring forecast for FY24?

The headcount in India’s IT sector this fiscal year is expected to grow only 2.4%, as per recruitment firm Xpheno. This is in sharp contrast to the years just after the pandemic when it saw the phenomenon of the ‘Great Resignation’—engineers resigning in huge numbers, sending firms into a hiring frenzy as demand shot up. Organizations globally pivoted to the digital, leading to more work for the IT services industry. The manpower growth in FY22 over FY21 was at 20%. But this paradigm has changed as the global economy has cooled. Many enterprises are capping their spending on discretionary IT.

 

The great slump
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The great slump

What does this mean for campus hiring?

Leading Indian IT exporters Infosys Ltd, and Wipro Ltd, which together hired 208,000 engineering graduates in the last three years, have said they don’t plan to go to the campuses at all this year. However, rivals TCS and HCL Technologies have said that they will hire from colleges. Even so, industry analysts believe that the hiring numbers would be small, given the weak demand scenario. There is also lower demand for basic skill sets freshers come in with. IT firms have to retrain the freshers they hire to be project-ready but due to pressure on costs, they may not be too keen to make that effort.

Is less hiring the main lever to maintain margins?

Manpower is more than 60% of an IT firm’s expense and cutting back on hiring helps. Kotak Institutional Equities says costs are being aligned to demand as the anticipated quick recovery did not materialize. Firms deployed levers to defend margins: “These include raising utilization rates, increasing productivity measures, lowering average cost of resources," it said in a report.

Are salaries going to be impacted?

Since supply of talent outstrips demand, it could theoretically lead to lower salaries. There won’t be any uptick in campus offers. Accenture has told workers in India and Sri Lanka they will not receive hikes this year. While Infosys and Wipro will roll out increments in November and December, TCS said 100% of the variable pay would be paid to about 70% of its workforce. Global capability centres continue to hire but salaries may moderate. IT companies will look at long-term incentives to retain senior talent.

How long will the slump last?

Difficult to say. Head hunters note sporadic hiring mandates from the IT sector and predict it could take at least two more quarters for hiring to restart. But this depends on macro-economic conditions and how growth in Indian IT’s primary markets—the US and Europe—shapes up. Meanwhile, analysts expect a considerable shuffle in talent deployment given the delays in projects ramping up. Engineers without a project could be quickly redeployed wherever projects are available.

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