Attrition in IT sector stabilising amid slowdown fears

It is to be seen how IT firms stick to their large fresher hiring commitments in case the slowdown deepens
Last Updated 30 May 2022, 02:54 IST

An impending economic slowdown, employee retention initiatives by IT firms, and layoffs by startups are likely to pull down the overall attrition rate of the Indian IT industry in the coming quarters. And when that happens, it will bring a big respite to the domestic IT industry that has traditionally attracted outsourcing due to availability of technology talent at cheaper cost. Many experts are of the opinion that demand for technology talent will come down in the coming quarters as the economic slowdown impacts IT spending. Various employee engagement initiatives like higher salary hikes, bonuses, and ESOPs are also starting to show results, they added.

“Indian IT firms have taken various employee retention initiatives in the last year. Apart from higher bonuses, ESOPs, and promotions, the rate of salary hikes during the appraisal has also been more (given the high attrition rate). On an average, salary hikes have been around 12% this year,” Supaul Chanda, vice president of technology recruitment firm Experis of Manpower Group told DH. Apart from these measures, the anticipation of an economic slowdown in the US and the Ukraine war is influencing the demand environment now, which may help in containing the high attrition rate faced by Indian IT firms, he added.

Dynamics of employee churn

Most Indian IT services companies have reported a more than 20% employee attrition rate in the last quarter of FY22. While Infosys reported an attrition rate of close to 28% in the March quarter of FY22, Wipro reported an attrition rate of 23.8% during this period. It was upwards of 20% for most mid-tier IT services companies.

Attrition in IT sector stabilising amid slowdown fears

While IT firms are struggling to contain high attrition, demand from startups and GCCs (global capability centres) remains high. As chances of going abroad on onsite projects reduce, many techies are preferring GCCs (technology captives of global MNCs) and startups due to higher salaries and flexible job schedules. Also, reluctance to resume work from offices is leading to some resignations in the technology sector.

However, things are changing very fast. Sources in the know said that there is a visible slowdown in new projects. “The scene is changing very fast. In the US, we have seen the laying off of staffers in the technology sector. Here, we see some companies talking about overstaffing now. So, hiring during the January-March period of 2022 and April- May has actually come down,” said a person familiar with the development.

“Some projects from startups have been impacted. So, more people are being kept as reserve employees. Against this backdrop, we see attrition coming down in coming quarters,” the person added.

Amid the ongoing Ukraine- Russia war and hyperinflationary environment, growth in the US has come down in recent quarters. Many experts are of the opinion that the US may face a recession this year. As the North American geography contributes more than 60% of revenues to Indian IT firms, such an impending slowdown is likely to change the demand environment sharply in the coming quarters.

Even enterprises in Europe, which usually contribute around 20-30% of Indian IT firms’ top line, are delaying spending decisions.

“Indian IT services revenue growth has moved in tandem with the growth in S&P 500 revenue. Going forward, consensus S&P 500 revenue growth is expected to moderate and this may result in a moderation in technology spending,” ICICI Securities wrote in a note. Amid anticipation of such demand slowdown, supply pressure in terms of talent demand is likely to ease.

Laying off in some startups is also making engineers cautious in making their job choices. Though current layoffs in startups are mostly in the support services space, techies are likely to opt for a more stable job environment if a slowdown hits the IT industry.

Supply-side pressure to ease

Apart from these factors, IT companies have also introduced various measures to retain talent. Initiatives like frequent promotions, bonuses and higher salary hikes are beginning to show positive results. Also, resumption of work from offices in phases is helping IT firms to engage more with their staffers that were earlier lacking during WFH (work from home) mode.

“On attrition, we think that this should come down in the following year. The impact of what we are seeing now, is the impact of putting freshers in, not only by us but by the entire industry, because it is a bit rotational churn issue across the industry. And as the industry puts in freshers, there is a new source of supply across the industry as well, and of course, finally, the interventions, which we are doing now as well,” Nilanjan Roy, CFO of Infosys has said during the post-results analyst call.

While supply-side pressure is likely to ease in the coming quarters, it is to be seen how IT firms stick to their large fresher hiring commitments in case the slowdown deepens.

(Published 29 May 2022, 17:36 IST)

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