TCS, Infosys, HCL Tech record 65% decline in hiring as IT sector runs into a rough patch

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It's been a fiscal year of slowing net additions in each quarter, but India's top three IT companies — Tata Consultancy Services, Infosys, and HCLTech — saw a steep drop in their net addition for the 2023 fiscal year — down cumulatively from 1.97 lakh to 68,886 — a 65 percent drop. This came as companies reported a dismal quarter and were not particularly optimistic about the near term due to the banking crisis in US regional banks and European banks, as well as the macroeconomic climate at large.

Hiring is considered an indicator of demand, and the stress was visible in Q4FY23. There was a 98.7 percent drop in the number of employees the three companies added on a net basis in Q4FY23 compared to the same period last year.

TCS, HCLTech, and Infosys added just 884 employees on a net basis in Q4FY23, compared to 68,257 in Q4FY22. Sequentially, the net addition of the three companies has fallen from 2,375 in Q3FY23.

TCS added 1,03,546 employees in FY22 on a net basis, which fell to 22,600 in FY23.

TCS Chief Human Resources Officer Milind Lakkad told analysts that the net addition numbers — 821 in Q4 and 22,600 for the full year — masks the full extent to which they ramped up talent acquisition.

In Q4FY23, TCS added 821 employees which is a significant drop from the 35,209 they added in Q4FY22.

“These numbers mask the full extent to which we had ramped up our talent acquisition during the year to cope with the unprecedented churn in the first half of the year.” Lakkad is referring to the company’s attrition numbers while talking about churn.

The company’s attrition reached 21.5 percent on a last-twelve-month (LTM) basis in Q2FY23, and has moderated to 20.1 percent in Q4. From its peak, TCS’ quarterly annualised attrition is down 10 percent, and expects attrition to return to pre-pandemic levels by the second half of the fiscal.

Lakkad said they onboarded over 44,000 freshers, as well as their “highest ever number of experienced professionals during the year”. For the coming year, the company is looking to add 46,000 campus hires in FY24. He added that the number of lateral hires “will be dependent on the demand from the business every quarter.”

CEO Rajesh Gopinathan also said that it is difficult to call how long the current situation is likely to last, or how the near-to-medium will turn out to be, but that the company did bring down its lateral hiring.

“From an operational perspective, we have been tightening. We are well positioned to be able to react on either side. We had brought down our lateral hiring and our overall capacity addition, leveraging the strong investments that we had 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 back to our more stable employee-led delivery model,” Gopinathan said.

Infosys, on the other hand, saw its yearly net addition nearly halve to 29,219, from 54,396 last year. In Q4, it ended the quarter with 3,611 fewer employees than it had at the end of Q3. In comparison, the company added 21,948 employees on a net basis in the same period last year.

Chief Financial Offer Nilanjan Roy said that the company’s utilisation has declined to 80 percent due to softness in demand.

“We expect the utilisation to improve gradually in the coming quarters as freshers start getting deployed. We will calibrate the hiring for FY24 based on the available pool of employees, growth expectations and attrition trends,” he said. The company hired roughly 51,000 freshers in FY23, but refused to give any targets going ahead.

Roy also told reporters during a press conference after its Q4 results that they have a lot of benches, and they have kept this bench over a period of time and are ready to move into production. “I think our model in terms of hiring has got enough flexibility to take care of new volumes. In any case, we have a rich bench, 80 percent utilisation is what we have, and usually, we have operated well above that,” he said.

The company’s attrition declined to 20.9 percent on an LTM basis in Q4FY23, declining steeply in every quarter of the fiscal year. Roy said that quarterly annualised attrition has reduced by over 4 percent sequentially, is the lowest in the nine quarters, and is below pre-pandemic levels.

Kotak Institutional Equities said in its note that the headcount addition for FY24 could be tepid due to “limited demand visibility, significant headroom on utilisation, moderating lateral attrition and trainees becoming billable”.

HCLTech’s net addition for the year came in at 17,067, down from FY22’s 39,900. For Q4 too, it added 3,674 employees, as opposed to Q4FY22’s 11,100.

CEO C Vijayakumar said during the call with analysts that it had added 3,674 employees in Q4 and 4,480 freshers during the quarter, it is “lower than the last quarter, adjusting for the market conditions.”

“We've added more than 25,000 freshers in the year, the highest in our history. While we are scaling fresher intake, we still have an opportunity here. We will have sustained focus on this over the next two to three years to improve this further,” he added.

Ramachandran Sundararajan, chief people officer said that attrition has been a phenomenal story.  The attrition rate in Q4 stood at 19.5 percent on an LTM basis, decreasing significantly from 21.7 percent in the previous quarter and 21.9 percent in the same quarter last year.

In a note, Nirmal Bang Institutional Equities said that HCLTech indicated that lateral hiring would moderate in FY24, while fresher hiring is expected to continue with a target of hiring 15,000 freshers during the year.