High attrition rate, which has been a major concern for the Indian IT sector in the past couple of quarters, may have eased up in the first quarter ended June 30, but analysts do not expect it to be in the comfort zone for the next two quarters.
While attrition is expected to decline quarter on quarter, employees in the experience band of 2-6 years are likely to jump ship in numbers, analysts said.
Attrition rate in the sector has been hovering around the 22-25% range on an annualised basis, but in the first quarter it is said to have dropped by 2-2.5%. While Infosys and TCS have effected wage hikes from April 1, Wipro has effected the same from June 1. For HCL, wage hikes kick in during the September quarter. As in the case of many other sectors, employees in the IT sector too time their exits around this time. ?We expect attrition to decline quarter on quarter as fresher pipeline resumes,? notes Standard Chartered Equity Research.
?Attrition at the entry level is not an issue with the top-tier IT companies, but the 2-6 years? experience bracket is the most crucial segment of the IT workforce. Now with the appraisal getting over, based on the hikes, there will be a lot of churn at this level,? says Sanjeev Hota, an analyst with brokerage house Sharekhan. ?With the structural and organisational changes at Infosys and Wipro, there might be more movement from these companies to rivals such as TCS and Cognizant,? adds Hota. Hiring, as expected, continues to be healthy. Angel Broking expects Infosys to have hired about 6,921 employees and TCS about 8,901 people in the first quarter. For Wipro, Standard Chartered expects net headcount addition in the range of 3,749 compared with 2,894 during the fourth quarter ended March 2011. According to Kotak, hiring trends are likely to remain strong, with robust demand outlook to reflect in a strong September quarter guidance, especially from Infosys.
The country?s largest software services exporter, TCS, has guided to hire 60,000 for FY12 with campus offers of about 37,000, while Infosys plans to hire 45,000, of which it has made 27,500 campus offers, indicating that majority of the hiring in FY12 will be of freshers. Industry experts say pricing, wage inflation and hiring plans will be an indicator of spending trends in the sector, highlighting the trajectory of discretionary spend. ?Wage hikes would be the major determinant and would also lead to varied margin performance across companies. We expect a sharp 250 bps quarter on quarter (QoQ) margin fall for Infosys, 220 bps decline for TCS, and 120 bps for Wipro. HCL Technologies will likely to deliver on its margin guidance of 100 bps sequential improvement,? says a report from Kotak. According to major brokerage houses, US dollar revenues of TCS, Infosys, Wipro and HCL Technologies, are being projected to grow sequentially on an average of 4-6% during the first quarter ended June as against 3-5% in the previous quarter backed by volume-led revenue growth and positive cross-currency movements.
?Overall we expect a strong quarter with good growth for the top-tier IT firms. This year even the client budget is 3-4% higher compared with last year indicating a steady fiscal,? says Srishti Anand, IT analyst, Angel Broking. For the June quarter, analysts expect TCS to lead the pack followed by HCL. In dollar terms, Kotak expects TCS revenue to grow 6.7% quarter on quarter and HCL Technologies by 6%.