IT companies to remain plagued by high attrition in Oct-Dec quarter

IT companies will remain plagued by high attrition hovering around 20% in the October-December quarter as involuntary exits increase. HR analysts highlighted swift exits of middle management buckling under high pressure and many who had joined the tech sector during the Great Resignation are now leaving the industry.

“The combined effect of layoffs, along with a recovery in hiring action, will drive attrition to remain high in Tech. With mid to mid-senior roles still in churn, attrition for the tech sector is projected to remain high in the 18% to 20% range for quarter closing December.” - Prasadh M S, Head of Workforce Research, Xpheno.

The tech sector, which had seen almost a year of high salaries, counter offers and an employee’s market as companies across sectors digitized their businesses and adopted cloud-based technology had seen a plummet in the hiring numbers over the last couple of months.

The IT companies in September end quarter had estimated that attrition will come under control as demand-supply gap eases. But, despite hiring freezes employees are changing firms often unable to take the pressure of shrinking margins and high targets.

“There is a normalisation taking place after the hiring frenzy of last year. Many are getting laid off or moving out as companies are getting more stringent with productivity,” said Manu Saigal, director for general staffing at staffing firm Adecco.

For IT service companies, wage bills are one of the largest expenses incurred and during the days of hiring frenzy, pushing for counter offers, out of turn hikes and bonus impacted employee costs. But as global recession started, the negotiation power of the candidates came down and this was highlighted in the September end results.

According to the September quarter earnings data, wage cost as a share of revenue fell at Tata Consultancy Services Ltd and HCL Technologies Ltd to 56.1% and 54.6%, respectively, while at Infosys, it was flat at 53.2%. L&T Infotech recorded a cost of 63.8% of revenue, followed by Wipro (60.9%)

Attrition for the second quarter of the fiscal year for Infosys stood at 27.1%, Wipro was 23%, Tata Consultancy Services was 21.5% and HCL was 23.8%.

“There are exits in the year end and then in March for the IT firms as some follow calendar year for appraisals while others go by the fiscal year. US firms laying off is also impacting those on outsourced projects in India,” said Neil Shah, vice president and partner, Counterpoint Technology Market Research.

In a study on salary increments released in September, Aon projected the IT sector to roll out 11.3% salary hikes next year from 12% in 2022. The IT-enabled services (ITes) industry should give a 10.1% hike in 2023, compared with 10.7% in 2022.

But according to sector analysts,the pressure on balance sheets will force India Inc’s IT, IT-enabled, startup and e-commerce sector to reduce their hikes by 150-200 basis points.