Tech sector hiring may see a pause for 6 months as companies watch out global trends

Hiring is expected to be down for the next six months in IT.

Staffing experts expect the next six months – the first two quarters of FY24 – to be grim for IT hiring, which comes ahead of companies reporting their results for the final quarter of FY23 and the full year from next week. Hiring trends will be keenly watched, as net headcount additions are considered to be an indicator of demand amid a larger challenging macroeconomic climate.

There was a marked decrease in net addition in each quarter of FY23, a trend expected to continue as companies report fourth-quarter earnings. However, while this has been considered a “correction” from the overheated market of the preceding year, experts say it is now only a factor of demand.

“Hiring trend for this quarter (Q4FY23) obviously is very flattish, or I should say it has gone down… The previous quarter was itself very low. There absolutely have been no requirements flowing in from the companies as most of them are in a wait-and-watch mode,” said Sunil Chemmankotil, CEO of TeamLease Digital.

The slowdown in Q4 is also clear from the job trend data. According to Xpheno’s Jobs Report for March 2023, the IT sector's active job openings closed 56 percent lower than in the same period last year.

Banking shakeup

“The global banking shakeups and resultant knee-jerks in the market became wet blankets for the quarter and full year closure… Key talent consuming sectors like Indian IT services with high exposure to the BFSI sector have been caught unawares by the shakeups. While the moderation will reverse itself, the impact will be visible in the early months of the new fiscal,” said Anil Ethanur, cofounder of Xpheno.

According to Chemmankotil, while there was some positivity and intention to hire in the past two quarters, companies are not moving to close positions they interviewed candidates for either.

“They're doing a wait-and-watch game. I suspect that this quarter will be very bad for the hiring scenario,” he said. He expects a 40 percent drop in net additions in the first six months.

Anshuman Das, the CEO of Careernet, said Q4 was muted due to the banking crisis, which scuttled plans that companies may have had.

“IT companies, initially in the earlier quarter, had planned to warm up that they will start hiring. Because of the banking meltdown, and banking being a reasonably large portion for IT services, it is muted,” he says.

He too said that the first six months do not look like it’s going to be up.

“It is going to continue to remain muted because I think people will wait and watch before really committing to it as things are not yet very clear. The second half, hopefully, will be better than the first half,” Das said.

Chemmankotil said the banking crisis only added fuel to the fire as hiring was already down.

For India’s top IT companies — Tata Consultancy Services, Infosys, Wipro, HCL Technologies and Tech Mahindra — net addition numbers stood at 59,704 in Q1 and 34,713 in Q2, while for Q3, the figure dropped by 4,904.

He added that there was already a cautious approach to hiring, and yet somehow they closed the year flattish.

“We see this year they are not at all opening up the demand. Typically, what happens by now — since it's a new financial year for Indian companies as well as the second quarter for the global companies — we would have seen some early signs on what they are going to hire for this year. There would be meetings and discussions about whether it is permanent recruitment, contracting, etc. There is always a number given to us, they start chasing. Nothing of such sort is happening now. They are sitting tight. I don't see any interest, at least for this quarter as well as the next quarter,” he added.

Normalisation

Saran Balasundaram, CEO of Han Digital, said that as opposed to the reconciled 4,80,000 net additions in IT and BPO services in FY22, FY23 stands at roughly 2,80,000. From here, FY24 is expected to be in the ballpark of 2,50,000 net additions.

The increase in FY22 came because hiring was very low in FY21 and it was also when pandemic-fuelled demand was at its highest.

“FY22 has to be looked upon very differently because of that reason. Otherwise, 2-3 lakh net addition used to be the norm. We may still be there, probably slightly lesser, but it is too early to talk about it,” he said.

The return to net addition numbers of 200,000 to 300,000 could also be a normalisation.

“The next financial year, net addition also is partly because of the previous year’s (FY23) commitment. Some companies will default in their commitments, some will honour their commitments. It is coming to a normalcy,” he said.

Balasundaram said that some companies are expecting a revival to start in Q2, while others put it in Q3. However, it’s normally the first two quarters when hiring is strong, and Q3 is seasonally weak due to holidays and furloughs.

“The generic tendency of the third quarter being slow may or may not be the case. These are not very normal years. In a normal year, Q3 is typically slow. What can happen is if the first two quarters are slow, then maybe some of the companies may actually see some bounce back in Q3 and Q4,” said Das.

The outlook for the second half of FY24 is still up in the air, and experts take a contrarian view as well.

“The first six months, from where I stand now, looks like there will be a slowdown and there won't be much action happening in the hiring space. We don't know about the subsequent six months because nobody knows as of now what it’s going to be, but typically, the thumb rule is that if the first half goes bad, the second half normally cannot cover up for the loss in the first half,” Chemmankotil said.

Net additions include backfilling attrition, something that Balasundaram said may slow down. He said it’s possible that companies may look at keeping a contractual workforce, as opposed to full-time workers. According to him, companies may focus on backfilling critical skills but may reduce their bench strength.

He attributed this to the lateral hiring numbers of the top 10 IT companies, which have fallen to about 500-600 from 2,000-3,000.

Chemmankotil said that since the market has corrected, it is now a matter of conserving cost and not going ballistic on investments.

“Previously, there was a lot of buoyant market information that it's going to be a tailwind. But now, there is definitely news about headwinds As far as the outlook is concerned, they would always go low and rather improve the utilisation factor of their bench,” he added.