Hiring in India's IT services sector is expected to remain subdued in the near term, with a potential pick-up in growth momentum anticipated by the second half of financial year 2026, according to ICRA.
The formation of a new government in the US could introduce some policy uncertainty in the short term, which will need to be closely monitored, ICRA added.
The moderation in demand for Indian IT services over the past 6-8 quarters can be attributed to reduced discretionary tech spending by customers in key markets like the US and Europe, amid an uncertain macroeconomic environment. Additionally, factors such as lower employee attrition and a stronger focus on improving employee utilisation have further contributed to the slowdown in hiring.
"While there has been some recovery in Q2 FY2025, ICRA expects hiring to remain low in the near term until the growth momentum picks up by H2 FY2026," the agency said.
Moderation in demand, coupled with the increase in utilisation of excess manpower added during financial year 2022-2023, exerted pressure on hiring by IT services companies through financial year 2024 and the first quarter of financial year 2025.
Coupled with an increase in attrition levels, this also led to negative net employee addition for the seven quarters till the first quarter of 2025 for ICRA's sample set companies, which includes HCL Technologies, Infosys, Tata Consultancy Services, Tech Mahindra, and Wipro Ltd.
As Gen AI makes rapid inroads, all leading IT services companies are upskilling their employees as they explore AI-driven business opportunities. This is likely to lead to an overall moderation in fresh hiring, as compared to pre-Covid levels, it predicted.
ICRA said that the impact of higher adoption of generative AI on improving employee productivity is expected to be visible over the next few years.
Average revenue in USD per employee for the sample set has largely been stable at around $50,000 over financial year 2020 to financial year 2024. However, this metric will show steady improvement if assessed on revenue in rupee terms due to depreciation of the rupee against some key foreign currencies over this period.
The last twelve-month attrition rate had peaked at about 23% during the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023, led by significant hiring and subsequent demand-supply mismatch.
However, it sequentially tapered with lower hiring by IT services companies amid moderation in demand in key markets of the US and Europe. The LTM attrition rate for ICRA's sample set companies started stabilising in the third quarter of financial year 2024 at about 13%, much lower than the pre-pandemic level of about 18% in the first quarter of financial year 2020 for the sample set companies.
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