With IT services companies witnessing a fall in their utilisation rate, and headwinds emerging with the recent deterioration in the banking and financial services (BFS) outlook, analysts are of the view that salary increments and hiring by companies will remain muted in FY24.
Utilisation rate is the number of employees on any active project, while bench refers to employees on a company’s payroll who at a given point of time are not on any active project. While all IT firms have a sizeable bench strength at any given period, a higher utilisation rate normally translates to better cost optimisation.
Companies like Infosys, Wipro and LTIMindtree have seen their utilisation rate decline on a sequential basis over the last three quarters of FY23.
According to a Crisil report, the IT services sector in India will see revenue growth decline by 700-900 basis points to 10-12% in FY24 due to global macroeconomic and financial sector headwinds in key markets.
“Headwinds in key markets, especially the BFSI segment in the US and Europe, will affect the revenue growth of domestic IT services companies. While the BFSI segment revenue growth is expected to halve to mid-single digit, it would be marginally offset by 12-14% growth in the manufacturing segment and 9-11% growth in other segments. Net-net, there would be moderation in overall revenue growth. Notably, IT spends by clients are witnessing a shift towards cost optimisation and vendor consolidation away from discretionary spends by most end-user industries,” Anuj Sethi, senior director, Crisil Ratings, said.
Aditya Mishra, MD and CEO of CIEL HR, said there was aggressive hiring by the companies in the past years and that will see some correction. “Accenture increased its headcount by 40% over last two years. In my view, that was significantly aggressive. That’s why we saw quick correction. You won’t see that kind of aggression in Indian IT services firms like Infosys, Wipro, HCL Tech, and others,” he said.
Pareekh Jain, founder of Pareekh Consulting, said: “Normally, utilisation rate doesn’t point to anything alarming because IT companies do love to keep some percentage of their workforce in bench in expectation of new businesses. But when a fall in utilisation rate is accompanied by a decline in revenue growth, companies take note of it, lest things might go out of control.”
According to Rostow Ravanan, chairman of Alfahive and former CEO of Mindtree, a fall in utilisation means increase in capacity. This happens for two reasons. One is over hiring and the second is delay in winning deals. He said if things don’t improve, there could be slowdown in hiring by IT firms in the short term and muted salary hikes.
“Hiring is down in a huge way due to the current economic situation. We expect a drastic dip in hiring in the first two quarters,” Sunil C, CEO of TeamLease Digital, said.
