The Indian IT services sector is expected to face multiple challenges that may not ease till about the end of this current fiscal (2022-23). Challenges, including margin pressures, lower rates of salary hikes, cuts in variable pay, and high early attrition rates, will continue for the next few quarters. In addition to this, geo-political tensions and recessionary trends in the US and European markets are expected to result in spending curbs by corporates, leading to moderate revenue growth for Indian IT services companies.
“We expect margin pressures for the sector to continue in fiscal 2023, and stabilise in fiscal 2024 at almost similar levels as fiscal 2023. Employee salary hikes, which were substantial in fiscals 2022 and 2023, are likely to be in single digits in fiscal 2024, helping stabilise margins. Attrition rates are expected to normalise towards end of fiscal 2023 and early 2024,” said Anuj Sethi, senior director, CRISIL Ratings.
He said geo-political tensions, recessionary trends in key US and Europe markets resulting in spending curbs by corporates are likely to moderate revenue growth in fiscal 2024, but to some extent, depreciation in the Indian rupee vis-à-vis the USD will provide some respite to revenue growth.
Experts believe that Indian IT services sector is currently experiencing an unforeseen attrition. “Attrition is hindering delivery execution and continuity more than any concerns of margin pressure, owing to which all kinds of novel and hitherto unknown processes of luxurious gifts in hiring or controlling variable pay during service are being adopted. While some of these are knee jerk reactions, these are padding clouds and the sector would reinvent itself as the most promising employment opportunity given the potential market for the sector in general and India in particular,” observed Subramanyam S., founder and CEO of Ascent HR.
There is no doubt that globally companies have been witnessing economic and geo-political tensions and are trying to prioritise their spends in order to optimise the cost of operations. “ In such environments, projects which are critical for business to run have been approved by their boards and are in the areas of technology such as application development, testing, IT infrastructure and platform engineering which do not command high margins. Hand projects involving new technologies such as high order of data analytics, robotic process automation, augmented reality and block chain which command premium in pricing are drying up; thus, creating the margin pressures on the IT services companies,” pointed out Aditya Narayan Mishra, the director and CEO of CIEL HR Services.
Experts also believe that technology is progressing exponentially and there is a dearth of knowledgeable industry professionals who can work with newer technologies. “When most foreign companies open offices in India, they relegate secondary work to their Indian office while they recruit those with the requisite skill and knowledge for their international office. In such a setting, there are many opportunities for those willing to work in any support or maintenance role. However, the market is thinning for those seeking greater gratification from working on something revolutionary. That is why we are witnessing high early attrition because if the work does not make someone stay, they can hustle to get a higher pay. Companies have a perpetual cycle of recruiting and training fresh hires to learn the ropes. This also means that more attrition problems are bound to happen in the IT sector,” explained Girish Linganna, director, ADD Engineering, Components India Limited (An Indo German Company)
Experts, however, are largely of the opinion that the Indian IT sector will still continue to do better than most other sectors, due to continuing focus on automation, and digital technologies. Acquisitions by larger players are likely to continue mainly for enhancing digital share in revenues.