Why 2014 could be another bad year for IT graduates

India's over $100 billion outsourcing industry is set to witness a strong growth in 2014 because of improving fundamentals in the US, the biggest market for domestic IT companies. The optimism is already visible in IT stocks such as Infosys and HCL Tech, which are trading near their all-time highs.

However, for the lakhs employed by the sector and the many who aspire to join the industry next year, 2014 could turn out to be another bad year. The IT industry is likely to recruit nearly 1.5 lakh employees in 2013-14, around 17 per cent lower than 2012-13, according to industry body Nasscom estimates. (Read)

Campus hiring may continue to be under pressure next year too as more and more companies resort to "just-in-time hiring" because of abundant labour and predictable demand, global brokerage Nomura said in a report last week.

Earlier companies used to hire a large number of freshers and put them on bench till they become billable. These hires were utilised only when a project came. Now, companies want to hire only when a deal is about to close to cut down on costs.

Unsurprisingly, utilizations, including trainees, are near three-year highs for Infosys, HCL Tech and Cognizant.

The shift in the industry from the traditional Time and Material (T&M) billing model (billing on a per-person, per-hour basis) to fixed-price proportions (revenue independent of employee addition) has also disrupted hiring and the trend is likely to continue.

Nomura says fixed-price proportions continue to be driven aggressively at most companies, with a 140-470 basis points increase on an last twelve month (LTM) basis at tier-1 companies (except at Infosys) and this ratio still has room to expand.

Credit Suisse says IT companies are increasingly turning to non-engineering graduates as the process of software development has become less complex in certain areas.

That's not all. Entry-level wages for lakhs of engineering graduates, which have stayed unchanged for the past five years, are likely to stay the same given that there has been a substantial increase in engineering graduate output, Nomura added. Nearly 7.5 lakh engineering students are likely to graduate this year, the brokerage estimated.

Nomura's findings comes weeks after a Credit Suisse report found that real wages of entry-level employees is at its lowest in more than 15 years. (Read the full story here)

At current levels of 14-15 per cent, attrition in the IT industry remains below historical levels of around 20 per cent further depressing the job market for new hires.

2014 could be bad for even the three million professionals employed by India's IT & IT enabled services (BPO, KPO, etc.) industry.

Nomura predicts wage hikes for offshore employees to remain moderate in the 6-8 per cent range and materially lower than the double-digit hikes seen in the past.