Macroeconomic challenges and geopolitical strife in these geographies are posing a severe challenge to the Indian IT majors with hiring expected to be even slower in this fiscal, according to industry experts.
Together, market leader TCS and the second-ranked Infosys added a total of 51,819 people in FY23 on a net basis compared to the 1,57,942 employees hired during the year before. In the final quarter of fiscal 2023, TCS added just 821 people while Infosys reported a decline of 3,611 in headcount, as global uncertainty dragged down technology spending.
“India’s job market should worry about the lower net hiring in FY23 and also the weak outlook by the top firms,” said Sunil C, chief executive of hiring firm TeamLease Digital.
Pointing out that it has a huge bearing on the IT sector where “intake till now has been phenomenal,” he said that even when compared to the pre-pandemic year of FY 19, net hiring in the coming year “could be down by 30-40% levels.”
“We are staring at a long cycle of no decision making because of the banking crisis and economic downturn,” he added.
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The IT giants reported lower than expected growth in the just concluded quarter of March 2023 stoking concern, with human resource executives terming the resultant low net hiring as a “worry.”Also read | Infosys Q4 Results: PAT rises 8% YoY to Rs 6,128 crore; firm pegs FY24 revenue growth at 4-7%
For sure, in the previous two-three years India’s IT majors have clocked higher than average hiring due to the surge in demand for digital services during the pandemic. That wave is now tapering significantly.
Earlier this week, both Infosys and TCS provided an uncertain outlook for the 2024 fiscal year owing to deal ramp downs, cancellations and delayed deal closures.
A report from brokerage Motilal Oswal said Infosys’ tepid in the final quarter of FY23 performance was surprising and is likely to have a dampening effect on the company’s growth this year. Particularly as the Bangalore-headquartered company suggests a significant impact on growth from discretionary business, which is the most vulnerable to pressures from macroeconomic slowdown.
Also read | TCS Q4 Results: Profit jumps 15% YoY to Rs 11,392 crore; dividend declared at Rs 24/share
Mukul Garg and Pritesh Thakkar of Motilal Oswal estimated that Infosys FY24 revenue growth to be around 5.2% YoY in constant currency terms, which is near the lower end of the guidance band (4-7%), “as it takes time for the mega deal opportunities to convert into order and revenues,” they wrote.
Meanwhile at TCS, the fourth quarter management commentary was a departure from the earlier outlook of confidence about resilience in the US, while the outlook on continental Europe outlook was tepid according to a report by Kotak Institutional Equities.
On Thursday, TCS share price fell 1.5% to Rs 3,192 per share after it announced its quarterly results. While the Infosys scrip fell 3.1% to 1,383.40 apiece ahead of its earnings release.
The benchmark Index Nifty remained flat at 17,828. On Friday, Indian stock exchanges were closed due to Ambedkar Jayanti. But Infosys ADRs closed 9.78% at $15.40 apiece on the US markets.
ET reported in January that the hiring mandates were down by around 70% for the Indian IT sector for the December quarter and 50% down for the September quarter.
Hiring will be reined
“The existing talent pool who were getting 40-100% switch hikes will recede and employers will now have a better control over the compensations too as the gold rush will now be almost over,” said TeamLease’s Sunil.
As a result of the demand challenges, Indian IT majors are expected to pull back on hiring to control costs. Earlier this week, the management of TCS and Infosys both pointed to the “uncertainty “ahead. Infosys even forecast revenue growth of between 4-7% for FY24, its lowest expansion in six years.
TCS said that it is bringing in more employees on its payroll in North America to replace subcontractors for long term cost benefits.
“We had brought down our lateral hiring and our overall capacity addition, leveraging the strong investments in hiring made in the last year. We are systematically using the return to normalcy on travel to reposition our employee base in North America away from the short-term contingent labour to our more stable employee led delivery model,” said CEO Rajesh Gopinathan.
The company reported flat sequential margin growth on the back of higher onsite employee costs. On a year-on-year basis, margins were down by 40 basis points.
TCS retained its fresher hiring targets at 40,000 for FY24, like the previous year. It also said it will honour all offers and ruled out any compensation cuts in the future. For the 2023 fiscal, TCS hired 44,000 freshers compared to its earlier estimation of 45,000-47,000. While the company did not indicate lateral hiring targets, the management said that the company will decide these requirements based on business demand throughout the year.
Meanwhile, Infosys onboarded 51,000 freshers during the 2023 fiscal, slightly above its guidance of 50,000.
“We have leeway for the next few quarters in terms of availability of freshers. We have no specific number for FY24,” said Nilanjan Roy, CFO, Infosys said on whether the weak demand will hurt FY24 hiring.