Hiring, wage hikes likely as outlook for IT appears ‘bright’

KV Kurmanath Hyderabad | Updated on April 05, 2021

Analysts peg revenue growth of tier-I firms at 2.5-3.4 per cent in Q4

The IT industry is likely to report a modest growth in revenues in the fourth quarter of 2020-21 and a double-digit growth in 2021-22. The tier-I IT companies are likely to close the quarter with a growth rate of 2.5-3.4 per cent in revenues in the quarter over the previous quarter.

A projected double-digit growth in the current financial year would also mean a sharp increase in hiring to meet the growing demand for IT services and solutions.

This is in tune with the Nasscom’s growth projections for FY20-21. With the pandemic slowing down economies across the world, the industry body had pegged the overall growth at 2.3 per cent in 2020-21. “Tier-II companies are expected to report higher growth rates in the range of 3.3-5.2 per cent. We can expect double-digit guidance for the sector in the current financial year,” analysts at the research firm Motilal Oswal have said.

Analysts say that this is their strong performance in the quarter in the last five years.

BVR Mohan Reddy, former Chairman of Nasscom, has said that the IT industry would see productivity levels going up and increased pace of hiring and hikes in wages.

“The outlook for the industry is bright for FY21-22. But the growth rate would vary depending on sectors. For example, those who serve sectors like banking will do better, while those exposed to aerospace, travel and tourism sectors might be impacted,” he said.

Hiring plans

Motilal Oswal said that a strong topline growth in the second and third quarters of 2020-21 sets up the industry for robust double-digit growth in the current financial year.

“The current financial year should continue to see large deal wins, aided by continued spends on cloud and acceleration in decision-making as Covid-19 vaccination ramps up,” Motilal Oswal said. The IT industry is in for a hiring phase, triggered by the demand flows and attrition in 2021-22.

“The outlook is bright for both growth and hiring. Wage hikes too are expected. It is a question for survival and growth for the industry and its employees. Wage hikes would help improve productivity levels,” said Mohan Reddy, who is also the Executive Chairman of Cyient, said.

“We expect managements to highlight plans to add to their workforce as higher demand and elevated utilisation should lead to the strongest employee addition in the recent past,” Motilal Oswal analysts said in their analysis of the fourth quarter performance.

This, however, would mean an additional burden on the IT firms.

A dip in margins is also likely for most IT services companies as they are expected to go for wage hikes. The utilisation rates, which have peaked during the pandemic period, will come back to the normal rates.

Research firm Emkay Global too has pegged the IT industry’s quarter-on-quarter growth rate around the 2.2-4.5 per cent. While the tier-I companies are expected to witness a growth rate of 2.2-3.9 per cent in revenues, the tier-II companies are expected to grow in the range of 2.5-4.5 per cent.

Healthy demand

Verticals like cloud, digital transformation, automation, artificial intelligence and cyber security continue to see healthy demand.

“Deal wins remain healthy across the companies. We expect Infosys and HCL Tech to guide for 12-15 per cent and 11-13 per cent revenue growth year on year for the financial year 2021-21,” it said.

Published on April 05, 2021

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