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Home / Markets / Stock Markets /  Employee attrition a big headache for IT companies. Can they tide over it?

The trend in employee attrition acts as a concern for the Indian IT companies with many firms in the sector witnessing a surge in attrition rates during the first quarter. And now, analysts believe that the challenges pertaining to labour scarcity and employees related expenses could act as a potential margin headwind in the near term.

“We believe that peak margins are behind us and we expect margins to come off by 50-100 bps for most of the companies under our coverage given increasing wage pressures and continued elevated subcontracting costs," said Jyoti Roy, an Equity Strategist at Angel Broking. Though, he expects most of the sector to post robust topline growth between FY21-FY23 with midcaps outpacing large caps in terms of revenue growth.

The strong demand environment has led to supply side challenges as employee attrition has picked up across IT companies and would lead to increase in hiring and retention cost for them, a potential margin headwind in near term.

However, Piyush Pandey, Lead Analyst at Yes Securities said that large cap IT companies are better placed compared to midcap IT companies to manage this supply side constraint. He expects the IT companies to maintain stable margin for FY22 as adverse impact from higher employee cost would be managed through positive operating leverage and other productivity led measures. The IT companies are also expected to benefit from rising offshore revenue mix in near term.

The accelerated digital adoption especially cloud based technologies by enterprises across the globe has been driving robust deal win momentum and hence strong revenue growth outlook for Indian IT companies. It has led to multi-year upcycle in the IT sector which is expected to last next 3-4 years. Information Technology is being increasing looked as the core part of organizational transformation programs across the globe.

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