Employee attrition a worry for IT companies

Indian IT industry is facing a hot talent war. And there has never been a good time to be a software engineer in the country like the current one. With strong demand environment and robust deal pipeline, IT services players across the board are facing rising employee attrition. This has already been reflected in the second quarter performance of top four IT firms. For instance, Infosys saw its attrition rising by 620 basis points over the first quarter to 20.1 per cent in the September quarter. Similarly, Wipro's attrition rate reached 20.5 per cent in Q2 of FY22, up from 15.5 per cent in Q1. For HCL Technologies, attrition rate touched an all-time high rate of 15.7 per cent, up from 11.8 per cent reported in the first quarter. Market leader Tata Consultancy Services had the lowest attrition in the industry, which came at 11.9 per cent in Q2 from 8.6 per cent reported in the first quarter. Employee churn for mid-tier companies also remained at a high level as well.

Such high attrition rate indicates the supply side issues being faced by the Indian IT industry. To ease the supply side problem and right-size the pyramid, Indian IT Industry is on a hiring spree. Especially, most companies are aggressively hiring fresh engineering graduates to ease the supply side challenge. The top four IT services companies are planning to hire around 160,000 graduates from campuses this fiscal year. This is more than the earlier projection of around 120,000 for FY22. While TCS has increased its projections for fresher hiring for FY22 to 78,000 from 43,000 earlier, Infosys plans to take on 45,000 freshers, up from the 35,000 projected, to meet rising demand. Wipro will take on 17,000 freshers, up from 12,000 planned earlier. Not only large IT firms, but also mid-tier IT companies are also planning to hire freshers aggressively to tide over the attrition challenge.

While IT companies add freshers to the employee pyramid at a faster pace than expected, industry experts are of the opinion that the supply side challenges will persist for another two-three quarters. This is because of the time lag in getting the fresher onboard and deploying him on a project. Even though a fresher is deployed in a project, the productivity lag varies between three to six months. Against this backdrop, IT companies are likely to face margin pressure in the coming two quarters. This is because all companies are rolling out various incentive schemes to retain talent apart from giving salary hikes and promotions.

Moreover, backfilling a vacant post is costing more to companies. Rising wage cost is likely to emerge as the biggest risk to margin profile in coming quarters. However, there is some good news in the people front for Indian IT industry. As the hyper demand tapers and the economy opens up, most employees are likely to work from offices in the next six months. This will help companies check attrition rate with higher employee engagements. Also, the pent-up attrition seen just after the pandemic is slowly receding. Therefore, the supply side challenges are likely to slowly ease in coming quarters.