IT companies are largely expanding the talent pool through freshers, though they take time to get into production. In the interim, mid-cycle compensation modification and retention bonuses are common. Onsite attrition is also high in companies. Brokerage and research firm Kotak expects more than 20 per cent of companies to lay off employees as they grapple with talent crunch in a demanding environment.
attrition rates IT companies have been at a high during the past few quarters as the demand for technology talent with digital skills is outpacing the supply with rising labor costs. With the increasing demand, attracting, training and retention of talent gained paramount importance.
Investors’ attention has shifted to potential demand crunch, while IT companies are facing a different challenge i.e. talent shortage to meet the demand. Companies are incurring high talent retention costs (retention bonuses, out-of-cycle pay revisions, etc.). The challenge exists onsite in India as well. I. This pressure will go to the margins.
hiring On demand is considered a good proxy and will be looked into. Hiring has been strong over the past few quarters. India’s top Indian IT companies Like Tata Consultancy Services (TCS) and Infosys hired record numbers in FY22.
Companies were expecting a price hike to compensate for higher wage inflation. They have achieved some level of revision, though not enough to offset wage inflation. It may be challenging to secure a price hike in the second half. The report said that for now, stable pricing would be a more reasonable assumption rather than a price hike approach.
“We expect different performance across companies on a sequential basis due to seasonal factors, while year-on-year growth will be strong. Margins remain under pressure as companies deal with elevated attrition resulting in higher retention costs and increased travel and discretionary expenses,” added Kotak’s report on Indian IT services.
It believes that Infosys and TCS Will do well but many others are at risk of declining growth. IT stocks have corrected and a bearish spending has already built up, however, according to the report, the bearish environment in stock prices has not been fully captured.
“The growth on a year-on-year basis will be strong across the board and range from 2-4.5% for Tier 1 and 3-5% for the mid-tier category. On a sequential basis, performance will vary depending on seasonal factors and a certain amount of portfolio stress.”