Research firm ICRA has predicted that IT companies will hire in the next 2-3 quarters as hiring will remain muted over the next two to three quarters as the industry faces a slump in demand.

It said that the macro-economic challenges in the US and Europe have caused a slowdown in demand for IT services. This resulted in a drop in hiring in the last four quarters as they could meet demand with manpower added in 2021-22 and the first half of 2022-23.

The average LTM (last twelve months) attrition for ICRA’s sample set companies declined to around 14% as of September 30, 2023,” it said.

Stating that the Covid-19 pandemic increased demand for digitisation in the Indian IT services industry, leading to record hiring and attrition rates during 2021-22 and the first half of 2022-23.  “The top five companies in the industry hired 2.73 lakhs and 94,400 employees in the 2021-22 and in the first half of 2022-23 respectively. The attrition rate in the industry also intensified to 22-23% due to the increased demand for talent,” he said.

HR costs shoot up

The employee cost as a percentage of revenues for ICRA’s sample set increased to 57.6 p.c. in the first half of 2023-24 from 54.5 p.c. in 2021-22 due to rising wage costs and slower revenue growth in an uncertain macroeconomic environment.

“This led to a moderate 260 bps decline in operating profit margin (OPM) for these companies. However, we expect it to stabilise in the near term, supported by relatively reduced hiring and lower wage increases,” the ICRA report said.