Recession fear. As West slows, IT firms cut down on hiring; net staff addition drops in Q2

As the economic downturn commences in North America and Europe, top IT companies slashed their net employee additions by 30-50 per cent in the second quarter of 2023 fiscal. This indicates that the top IT companies are anticipating global IT spending to contract in the next fiscal year even as staffing costs are rising due to high attrition.

Despite rising attrition levels, the top four IT companies reported a significant reduction in the net addition of associates in Q2FY23.

Tata Consultancy Services, which employs the highest number of IT professionals in India, reduced its net additions by 30.3 per cent to 9,840 additional associates from 14,136 net additions reported in Q1FY23. This comes even as attrition levels for the company rose 21.5 per cent in Q2. Wipro essentially replenished its benches, adding a net of 605 employees to its ranks with most of its hiring being done in Q2 to replenish the substantive attrition of techies at 23 per cent. Infosys has also slashed its net additions by 50 per cent, adding 10,032 net additions in Q2, versus 21,171 in Q1.  HCL was the only major IT company that boosted recruitment in the second quarter of this fiscal, with net additions rising to 8,359 but it had added only 2089 in the first quarter of this fiscal.

While IT companies have reported mostly steady margins despite IT spending contracting globally due to the looming recession - the stalling of recruitment clearly indicates that the IT companies are anticipating degrowth in future business in the coming months.

Rising employee costs

Anuj Sethi, Senior Director, Crisil Ratings Limited, explained, “Top IT companies stepped up their recruitment significantly in FY22 in anticipation of strong rebound in IT services in FY22 and FY23. While demand for IT services will still grow in double digits in FY23, costs — both travel and employee costs — have risen and moderated EBITDA margins of IT players by up to 200-250 basis points already in the first half of FY23.”

“As global demand for IT services is expected to moderate to 8-10 per cent next fiscal, due to rising global geopolitical issues and recessionary trends in key geographies, IT companies are taking steps to align their workforce and therefore bench strength and reducing net hires. Attrition gaps meanwhile continue to be filled. Focus on cost optimisation will continue,” Sethi concluded. 

Commenting on the outlook of the order book, N Ganapathy Subramaniam, COO, TCS, said: “There is some softening in terms of long-term deals. Europe is still looking to see how its winter is going to be; so, some softness can be expected in the BFSI sector and insurance (on the PnC side) in the case of North America.” However, according to Subramaniam, the strong execution of an already robust order book aided in improving financials for the IT major.

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