IT hiring will return, but with a difference

The number of job offers in the sector in December 2023 declined 21% over December 2022 and 4% over September 2023, according to jobs platform Naukri.com. (Image: Pixabay)
The number of job offers in the sector in December 2023 declined 21% over December 2022 and 4% over September 2023, according to jobs platform Naukri.com. (Image: Pixabay)

Summary

  • The current lull in hiring is due to muted demand for IT services. However, it’s expected to pick up

There has been a deepening sense of gloom in hiring in the information technology (IT) sector in the past few quarters. The combined headcount at the top five Indian companies by revenue dropped by about 65,000 in 2023. The number of job offers in the sector in December 2023 declined 21% over December 2022 and 4% over September 2023, according to jobs platform Naukri.com. Although this pullback is unfolding amid advances in artificial intelligence (AI), that’s not why IT companies have slowed hiring. They are adjusting to the muted demand for IT services. As that picks up, so will hiring.

 

That said, the adoption of new tools such as generative AI promises to increase productivity. This has triggered concerns that the drop in headcount and the lull in hiring are part of productivity gains. A survey by HR consultant Randstad last year showed about half of Indian employees worried about losing jobs to AI, compared to a third in developed countries. More employees are currently staying put in their companies compared to a year ago—voluntary attrition rates dropped by 7–11 percentage points among the top five companies in the December quarter.

There are early signs that hiring could be back, but with caveats. Mint reported that Infosys, which had decided to skip campus hiring, is back on campus for some specialized skills. Teamlease said IT services companies intend to hire over 40,000 freshers in the next six months, though the appetite is weaker than a year ago. As global demand for IT services rebounds, hiring will pick up, too—but with changes.

Optimizing utility

During the pandemic, IT companies were on a hiring spree for two reasons. One, attrition rates had surged to 20–25%. Two, clients were adopting digital technologies at a faster pace. Global demand for IT services grew 12.8% in 2021, according to Gartner. When the consulting firm surveyed over 200 chief financial officers (CFOs) in July 2022, 69% planned to increase their spend on digital technologies.

However, as the economic uncertainty extended, IT companies faced delays in project approvals and spending cuts. Demand dropped. As did employee utilization rates of IT companies. However, with attrition (voluntary and non-voluntary) and limited hiring, utilization rates have started picking up. In a note this month, IDBI Capital noted that "utilization for large and medium IT companies seems to be near the peak and attrition is at the lowest, indicating limited room for margin expansion through utilization". While the room for individual companies might vary, the sector will have to step up hiring as demand returns.

 

Productivity race

The drop in IT demand was accompanied by the launch of AI tools that promised a boost in productivity. A study by researchers from Harvard, Massachusetts Institute of Technology and others found that generative AI could improve the performance of highly-skilled workers by 40% compared to those who don’t use it. For IT services companies, it offers both an opportunity to increase revenues from implementing AI projects for clients and to improve margins by using AI to develop software more efficiently.

This will impact the skillsets companies look for. As Infosys returned to campus, Mint reported the company was looking for specific skills—cybersecurity and data mining. Similarly, Teamlease pointed out that IT growth was fuelled by demand for AI and high-performance computing. The impact of headcount reduction on margins has been mixed for the top five companies. The impact of AI on productivity will take time. Right now, companies are investing in those skills through training and hiring.

Growth factor

The scale of hiring hinges on the growth in demand for IT services. In its January report, Gartner wrote: "The overall IT spending growth rate for 2023 was 3.3%, only a 0.3% increase from 2022. This was largely due to change fatigue among CIOs. Momentum will regain in 2024, with overall IT spending increasing 6.8%." The IT services segment is expected to grow faster at 8.7% in 2024, from 5.8% in 2023.

 

Tata Consultancy Services chief executive officer K. Krithivasan echoed this sentiment while speaking to analysts in January. "In the face of macroeconomic uncertainties around fear of recession, and continued high inflation, many businesses have been cautious about further investments, creating a pent-up demand…we are optimistic that our customers will scale up these initiatives once they gain the comfort that the macro risks are receding;" he said. That will drive hiring too.

www.howindialives.com is a database and search engine for public data

 

 

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