Growth pangs! India's top 10 IT firms’ employee count plunges by 21,327 in Q1

Tata Consultancy Services (TCS), L&T Technology Services (LTTS), Persistent, and Coforge were the four companies to see headcount additions this quarter.

Employee count for the top 10 Indian IT companies by revenue fell by 21,327 in Q1FY24, while they added 69,634 employees in the same quarter last year, amid an increasingly challenging demand environment.

Of the top 10 IT companies in India by revenue, six companies saw their headcount shrink during the quarter, while four made additions on a net basis in a quarter that has been a washout, with few indicators for a pickup in Q2.

The Indian IT sector is one of the biggest private sector employers in the country, and employee addition is still the best growth indicator for these firms, which derive most of their business from markets such as North America and Europe. According to a report by NASSCOM in March, India’s tech sector employs 54 lakh people.

Tata Consultancy Services (TCS), L&T Technology Services (LTTS), Persistent, and Coforge were the four companies to see headcount additions this quarter. While TCS added 523 employees on a net basis against the backdrop of its large base of 6.15 lakh employees, Persistent added 241 employees on a net basis, Coforge added 1,000 employees and LTTS added the most at 1,159 (including 800 from its acquisition of Smart World & Communication), an indication that mid-cap companies fared somewhat better than their larger competitors.

Of the 10 companies in question, net addition numbers have been on a decline for three consecutive quarters at Tech Mahindra, Wipro, LTIMindtree and Mphasis.

The headcount movement into negative territory is an indicator of the uncertain demand environment that companies are currently facing, with low visibility regarding deal closure timelines, delays in start dates, and fewer large deals, among other factors. Companies maintain that they hired ahead of time during the heydays of 2022. They are now focused on upskilling existing talent, deploying talent on the bench, increasing utilisation, making the freshers they hired previously productive, and defending their margins.

This comes despite attrition being on a downward trajectory, as companies are not replacing all attrition.

Phil Fersht, the co-founder of HFS Research, told Moneycontrol that most firms overhired during the “Great Resignation years of 2021 and 2022 and need to scale back to prevent significant market erosion.”  Additionally, he said that most are pushing ‘more for less’ with developing capabilities in automation and artificial intelligence (AI).

Those in the staffing industry also do not expect any pickup in the next quarters and may, in fact, see a net addition for the year for the sector to be in the red.

Speaking to Moneycontrol, Sunil Chemmankotil, the CEO of TeamLease Digital said that apart from the usual factors such as utilisation, bench, fresher deployment and others, companies have been very conscious.

“They have been very conscious. They have been signing deals — it's not that the sales are not happening — there is a complete slowdown in discretionary spending, but the world must go on. There are digitisation programs which are getting implemented across the sectors and they are bagging some deals. They are trying to multi-use the same existing employees as much as possible by effective resource management. They are also only selectively replacing attrition,” he said.

Additionally, for lower-end skills, he said that it is possible that IT companies are anticipating disruption where they may use generative AI and improve the productivity of the employees without adding much headcount.

While the IT sector has significantly slowed, Global Capability Centres setting up shop in the country are absorbing some of this talent as they choose to insource rather than outsource to IT players. Estimates for the number of people working in GCCs in India range between 16-19 lakh and is expected to reach 45 lakh by 2030, as per EY.

“Even in my customer portfolio, we have seen a substantial increase in the requirements of GCCs compared to IT services, because IT services are selectively replacing attrition, and are also looking at going very slow now,” Sunil said.

Aditya Narayan Mishra, CEO of CIEL HR said that while some expectations of a revival were there at the beginning of a quarter, what played out was a lack of demand as large deals are not coming in the numbers that they used to.

“Companies continue to postpone their decisions. They continue to break large projects into small pieces and give piece by piece. Investments in modern technology have slowed down. They are only going for projects which are extremely essential for their business or where the ROI on the project is short-term. The long-term projects with long-term implications have been all pushed to the backburner,” he said.

Of the engineers that the sector absorbs every year — at roughly 2 lakh — he anticipates a fall of 20-30 percent.

On the net addition front of the companies too, both do not expect a revival in Q2 or Q3. While there are no signs of a pickup in Q2, the December quarter is a seasonally weak quarter for these companies. With this perspective, Sunil from TeamLease expects either the net adds to be at status quo, or even be negative for the year.