Slowdown Hits Indian IT Companies' Campus Recruitments

 

As the Indian IT services sector grapples with a slowdown in the US and global macroeconomic uncertainties, industry experts predict a muted hiring environment despite a robust pipeline of deals. Research firm ICRA recently noted that hiring is expected to remain slow over the next two to three quarters, indicating a continued slowdown into the first quarter of FY25.

 

Hiring Trends and Statistics

Between Q2 FY2023 and Q2 FY2024, companies sampled by ICRA experienced a net decrease of 49,606 employees, in stark contrast to a net increase of 245,248 employees from Q2 FY2022 to Q2 FY2023. This decline is attributed to companies not fully backfilling attrition and focusing on improving employee utilization amid weakened demand.

 

Kamal Karanth, co-founder of Xpheno, highlighted the subdued campus hiring trend, suggesting that the IT sector may collectively onboard far fewer than 100,000 freshers and entry-level employees this fiscal year. “Every 10,000 freshers onboarded translates to a ₹400 crore top-up to the compensation cost. Add to this, the overheads involved, and it is evident that one cannot go to campus amidst adversities and market uncertainties,” Karanth explained.

 

Financial Impacts and Market Uncertainty

The top five IT companies achieved record hiring of 273,000 employees in FY2022 and an additional 94,400 employees in H1 FY2023. However, due to the uncertain macroeconomic environment in key markets such as the US and Europe, ICRA expects revenue growth for the Indian IT services industry to moderate to 3-5% in FY2024, compared to 10% in FY2023.

 

The slowdown is anticipated to persist for several more quarters, contributing to an overall reduction in hiring across the industry. The recent trend of net negative employee additions has enabled companies to maintain employee costs and profit margins, despite the hiring slowdown.

 

Impact on Employee Costs and Operating Margins

Employee costs as a percentage of operating income for Indian IT services companies have increased steadily in recent years, rising from around 54% in FY2021 to nearly 58% in H1 FY2024. While this increase has exerted pressure on profit margins, major IT services companies have managed to mitigate some impact through enhanced operating efficiencies.

 

With ongoing macroeconomic challenges and delays in client decision-making, ICRA expects revenue growth for its sample set of Indian IT services companies to moderate to 3-5% in FY2024 from 9.2% in FY2023. Despite these challenges, the report anticipates revenue growth improving to about 6-8% in FY2025, supported by a strong order book and deal pipeline for many industry players.

 

Optimizing Employee Costs

The report also projects that the operating profit margin (OPM) will moderate by 70-100 basis points to 20-21% in FY2024 from 21.7% in FY2023 due to lower operating leverage. However, the OPM is expected to remain healthy with potential improvements over the medium term, driven by the stabilization of wage costs and optimization of the employee pyramid and utilization.

 

Historical Context

The current slowdown in fresher hiring is reminiscent of previous low years in fresh intake:

 

FY2021: 85,000

FY2019: 104,000

FY2018: 88,000

FY2010: 80,000

FY2002: 73,000

 

The slowdown in campus recruitments for Indian IT companies underscores the broader economic challenges facing the industry. As companies navigate this period of uncertainty, optimizing employee costs and improving operational efficiencies will be crucial to maintaining competitiveness and profitability. Despite the current hiring slump, the sector remains resilient, with expectations for growth recovery in the coming fiscal years supported by a strong deal pipeline and strategic adjustments.