Info-tech

Mid-size IT firms follow their larger peers in slashing workforce in Q1

Venkatesh Ganesh Mumbai | Updated on July 31, 2020 Published on July 31, 2020

Companies have attributed this reduction in workforce to clients reducing or even stopping discretionary spends, which result in lesser projects, thereby impacting billable hours

This is the first time since the global financial crisis that mid-sized IT companies have reduced their headcount

Mid-sized companies in the information technology (IT) space seem to have followed their larger counterparts when it comes to workforce reduction in Q1 FY21.

As per data of companies such as Mindtree, Mphasis, Hexaware and NIIT Technologies, average reduction in the first quarter has been in the range of 500-1,200 employees. Additionally, these companies have made no new hires in Q1.

This is the first since Q4 of 2008-09 (the days of the global financial crisis) when mid-sized IT companies have reduced their headcount.

Hexaware reduced its headcount by 1,173, and it had a total employee count of 18,825 at the end of June quarter.

NIIT reduced its headcount by 442; at the end of Q1, it had a total employee strength of 10,598. Mphasis reduced its headcount by 255, and its total employee base was 26,143. Only Mindtree reported a marginal increase in headcount. In Q1, total employees were 21,991 compared to 21,955 in Q4.

Companies have attributed this reduction in workforce to clients reducing or even stopping discretionary spends, which result in lesser projects, thereby impacting billable hours. “IT companies’ clients are in a flux due to Covid-19, and hence, new deals take longer to close,” said Chakraborty, Co-founder and Executive Vice President at human resources firm TeamLease Services. In sectors such as travel and hospitality, business has been severely impacted. “In some parts of our BPO business, we don’t see demand coming back, and there were performance-related issues overall, which have resulted in the reduction of workforce,” explained R Srikrishna, CEO, Hexaware.

Anuj Sethi, Senior Director, CRISIL Ratings, is of the view that now most clients focus on mitigating emerging business risks and defer discretionary IT spend, while letting existing contracts continue.

But some in the industry say that even existing contracts are getting renegotiated, which is resulting in companies embracing increased automation. Recently, outsourcing consultant ISG, had pointed to elongated deal cycles and weak deal activity across verticals such as BFSI, as a fallout of the pandemic.

This has also put fresh and lateral hires on the backburner as companies are primarily looking to increase utilisation which is in the range of 75-80 per cent. During pre-Covid-19 times, Q4 and Q1 were associated with a part of the workforce wanting to pursue higher studies; this year even that has come to a halt.

In the large company space, TCS, Infosys, Wipro and HCL Tech have together reduced their workforce by 9,000. Overall they employ around one million people.

While additional hires have come to a grinding halt, companies are honouring previous job offers and onboarding employees gradually over the year.

Around four million people work in the IT industry, and every year, 10-14 lakh engineers graduate in the country.

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Published on July 31, 2020
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