Hiring at top IT firms rises fourfold in 2018

New Delhi: India’s top 10 information technology (IT) companies added 114,390 engineers to their workforce in 2018, a more than four-fold increase from the previous year. While the numbers are the best in five years, few are predicting a similar showing in 2019.

Much of the jobs added in 2018 may have been because of increased hiring in the US under pressure from the Donald Trump administration and customers outsourcing large contracts on the condition that the vendors absorb some of their employees, two human resources (HR) executives said.

Although none of the companies disclosed details of hiring in the US or the number of employees absorbed from clients, the HR executives claimed that at least half of the net hiring made by companies in 2018 is on account of one of these two reasons.

The top five IT firms—Tata Consultancy Services Ltd, Cognizant Technology Services Corp., Infosys Ltd, HCL Technologies Ltd and Wipro Ltd—added 99,010 employees last year to take their workforce to about 1.23 million as against an addition of 19,360 people in 2017, according to an analysis by Mint.

The rest of the top 10—Tech Mahindra Ltd, Larsen & Toubro Infotech Ltd, Mindtree Ltd, Cyient Ltd and Zensar Ltd—added just 15,380 engineers compared with 2,796 in the previous year.

India’s $167 billion software services industry employed 3.7 million people at the end of December and the 10 largest companies accounted for 38% of them.

Some experts say last year’s jump looks more like a temporary recovery as the industry undergoes a structural change from a people-led model to a platform-based approach.

“I see the global economy slowing this year, and IT hiring will slow with it. Plus, the emerging IT services models will ultimately require fewer people to support it with smarter automation and the use of platforms,” said Phil Fersht, CEO of US-based HfS Research, an outsourcing-research firm.

For now, stable macroeconomic growth in both the US and Europe has made more companies across industries spend more on outsourcing technology work, resulting in higher demand for services offered by IT outsourcing companies.

Unsurprisingly, a few analysts expect the sector to grow at faster pace in 2019 than in the recent past.

“(A)nnual growth rates in CC (constant currency) slowed in CY (calender year) 2017 by ~250bps (basis points) y/y across the Indian IT services industry, and improved in CY18 by ~90bps across the industry. Based on current Street estimates, we expect the Indian IT services industry revenue growth rates to continue to re-accelerate in CY19 at 9.3% y/y growth,” Keith Bachman, an analyst with BMO Capital Markets, wrote in a note dated 6 February.

Mumbai-based TCS is expected to grow its revenue by more than 11% in constant currency terms while Infosys expects full-year revenue to grow, at best, 9% in the year ending 31 March.

A large number of big IT outsourcing contracts have seen some employees of clients join the workforce of technology vendors.

For instance, 9,000 of the 13,514 people added by Wipro in 2018 joined from Alight Solutions as part of an outsourcing contract. Wipro won a $1.6 billion deal from Alight Solutions LLC, the former benefits administration and human-resources outsourcing business of Aon Plc in September last year.

Infosys’s contract with Verizon and TCS’s two mega contracts—the over $2 billion, 10-year contract from Transamerica Life Insurance Co. and $1.36 billion over 10 years from a unit of British insurer Prudential Plc—also saw the two IT firms absorb employees from their clients. The Transamerica contract alone added 2,200 employees to TCS’s workforce, which totalled 417,929 at the end of December.

Not many expect IT firms to add as many people in 2019 as they added last year.

“There is no structural change to conclude that the pace of hiring will continue. The industry is going through a change and faces the same pressure from automation. Of course, we will continue to hire in the US. But overall hiring depends on client budgets, which in turn is tied to macroeconomic growth,” an executive at Wipro said on the condition of anonymity.

“Talent in areas such as algorithm development and automation is increasingly scarce and expensive, which will stifle resources and put increased pressure on services firms to train junior or mid-level staff at a faster pace than ever. I predict hiring will slow in the second half of 2019 and not pick up aggressively until early 2021,” said Fersht of HfS Research.