Net employee addition by top 5 IT Services companies dips into the negative in Q3

Representative image: Reuters

The number of employees in the top five Information Technology services companies — Tata Consultancy Services, Infosys, HCLTech, Wipro, and Tech Mahindra — has declined since the last quarter, the first time since the first quarter of FY 21.

While the companies together added 34,713 employees in the second quarter of financial year 2023, in the third quarter, they lost 4,904. This is a 114 percent dip quarter-on-quarter for the five companies when it comes to net addition.

Headcount addition is considered an indicator of demand in the industry, and the current drop comes as firms go slow on hiring in an increasingly cautious macro environment.

As recession concerns loom in the US and Europe amid interest rate increases to tackle inflation and the war in Ukraine, Indian IT firms are under pressure as Western clients slow discretionary spending.

The companies attributed the lower or negative net headcount addition in the third quarter to talent investments they had made previously, as well as increasing workforce utilisation metrics.

Tech Mahindra, which reported its results on January 30, saw the steepest reduction in headcount among these five companies, ending the quarter with 6,844 fewer employees.

It joined ranks with Tata Consultancy Services and Wipro, which saw a reduction in headcount sequentially by 2,197 and 435 employees respectively.

This was the first time in 10 quarters that the headcount at the end of a quarter for TCS and Wipro was lower than in the previous quarter. Tech Mahindra had last seen a decline in Q4 of FY21, which makes this reduction the first in seven quarters.

Infosys and HCLTech, on the other hand, reported a moderate increase in headcount sequentially.

While Infosys saw its headcount go up by 1,627 employees, HCLTech led the pack with an addition of 2,945 employees. This isn’t to say that headcount addition hasn’t slowed for these two companies either.

Since Q1 of FY21, when all companies reported a net reduction in their headcount, their hiring has increased significantly thanks to unprecedented pandemic-accelerated demand for digital transformation.

Tech Mahindra was the aberration, as it saw a reduction in headcount for three quarters in FY21.

Following the reduction in headcount in April-June 2020, during the first wave of the pandemic, the net addition of the other four companies increased dramatically between Q2 of FY21 and Q4 of FY22.

Tech Mahindra’s headcount addition in this fiscal year has been on a downward trajectory, as it added 6,862 employees in Q1FY23 and 5,877 employees in Q2FY23.

CFO Rohit Anand attributed this to the business process services segment and quarterly seasonal rampdown that happened based on the increase last year.

“The current IT growth environment is reflective of this headcount reduction as well as our endeavour to improve our utilisation," he said.

Anand told analysts that hiring going forward will be “very closely aligned and monitored with the demand environment that we see.”

The company’s leadership maintained that there may be room to increase utilisation as well, and would focus on getting its to its previous level of 88 percent.

He added that the demand scenario is not as robust as it was two quarters back, and with easing supply-side challenges and uncertainties in the market, Tech Mahindra was trying to hire just in time.

“The macro environment is relatively volatile. So we just want that maybe while we are actioning closer and linking ourselves to the macro environment, the linearity of correlation between headcount and growth is also diluting a little bit,” he said.

TCS Chief Human Resources Officer Milind Lakkad said the company had invested in talent ahead of time, and it was making them productive, adding that it doesn’t indicate anything on the demand front.

Wipro’s Chief Human Resources Officer Saurabh Govil said the company invested in talent ahead of time and had low utilisation and bench strength.

“We have headspace of four or five percentage points by utilisation. We are hiring and training them and keeping them ready to manage demand. From a supply-chain perspective, we don't see a challenge,” Govil said.

Infosys CEO Salil Parekh said the company wants to ensure that all the talent it has hired is trained and ready to be deployed.

Ramachandran Sundararajan, Chief People Officer at HCL Tech, which saw the highest net addition this quarter, said the hiring was a function of attrition and campus hiring in the previous quarter, when the company took in a higher number of freshers.

Sundararajan added that gross hiring will be moderated when there is a significant drop in attrition, and looking at a one-quarter decline and extrapolating it to future demand may not give the true picture.

While company leadership say the environment isn't sombre, data for January 2023 paints a different picture.

According to data from Xpheno’s jobs outlook report for January, the IT services sector saw a 7 percent drop in demand in comparison to December 2022. It had slid for seven months before going up in November.

Xpheno said the IT Services sector registered the second lowest active demand over a 24-month period, with 65,000 active job openings at the end of the month.

The lowest was in October 2022, at 60,000. On a year-on-year basis as well, the sector had its second sharpest drop as available jobs in January 2023 were 49.5 percent fewer than in January 2022.

With the drop in volume, Xpheno said the IT services sector’s contribution to overall job openings continues to be below the 30 percent mark for the fourth month.

“With just 23 percent contribution to Active Jobs, IT Services sector continues to lose its dominating spot in the Industry wise contribution mix,” Xpheno said.

Anil Ethanur, the co-founder of Xpheno, said the local hiring patterns of the tech sector has been sensitive to the layoff trends over the last quarter.

“The gradual drop in hiring demand in Indian Tech Sector has been largely correctional, but currently entering a phase of negative impact if further sustained. On the talent acquisition front, the tech sector cannot afford to be in an uncontrolled downslope for long,” he said.

Ethanur added that while the tech sector braces for more impact of global economic movements, there is also light at the end of the tunnel as “downturns overseas tend to drive more jobs to Indian shores.”

“The current quarter will be a critical wait-and-watch quarter not just for tech but all sectors and the talent in them,” he said.