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The Indian IT industry has been reeling under high attrition for quite some time. Despite several initiatives, including a record number of freshers hiring, bonuses, ESOPs, leveraging tech, and salary hikes, employee churn is refusing to come under control. On average, the Indian IT’s attrition rate stands at 24 per cent, as per AIM estimates.
As shown below, Cognizant has the highest attrition rate at 31 per cent (FY-22 Q2), followed by Infosys, Happiest Minds, HCL Technology, Wipro and others for the first quarter of FY-23.
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Tech Mahindra sees a decline in attrition
Tech Mahindra is one of the few IT companies to have witnessed a decline in attrition, noting a 2 per cent drop compared to the previous quarter. However, their attrition rate is still higher compared to FY-22 Q1, which was 17 per cent. So then the question is would the attrition rate start to decline in the near future?
Thanks to some of the initiatives that the company took over the last few quarters, they are now witnessing a decline in the numbers.
Tech Mahindra chief Rohit Anand said they had hired significant freshers in the last couple of quarters, where they have helped them build, train, and deploy. “That has been the internal focus. As we move forward, we get more streamlined on that model. We will continue to add that sequentially over the next two quarters”, shared Anand at the earnings call held last month.
In the first quarter of FY-23, the company added 6,862 new hires, taking its headcount to 1,58,035 employees. In FY-22 Q4, it had added about 6,106 new hires and 5,209 employees in the same quarter last year. In terms of freshers hiring, Tech Mahindra added about 10K freshers last year and looks to add a similar number in the current fiscal year (FY-23) as well.
Tech Mahindra chief CP Gurnani said that the supply bases they have added in Tier-2 cities like Nagpur, Chandigarh, and Coimbatore are now coming up to speed. He believes that the attrition rates in those cities would be lesser. Gurnani expects the attrition rate to come down to 17~18 per cent in the next two quarters.
Besides Tech Mahindra, other IT players, including Mindtree, Infosys, TCS, and Wipro, are also aggressively hiring talent and setting up bases from the Tier-II and Tier-III markets. “We are looking at getting some talent in some of tier II and III cities like Coimbatore, etc., which would help us in not only managing the demand but also managing attrition”, said Vinit Teredesai, CFO at Mindtree, “These cities are traditionally having lower attrition rates compared to some of the Tier I cities.”
Rising attrition, impact on deals
The reasons for increasing attrition in IT companies are plenty. In a nutshell, shortage of digital talent alongside high demand for qualified individuals and increased wages has led to an increase in attrition.
On average, an IT employee’s tenure is between three to four years. During the pandemic, Indian IT also witnessed increased demand and a boom in the job market. In addition, considering the changing nature of most IT companies’ working models (hybrid, remote, others), employees are looking for more flexibility and healthy support from their employers.
Moreover, employers are now willing to pay more than market standards to meet their requirements. This has inevitably led to rising competition in terms of salary hikes and other benefits as companies continue to attract the best talent.
Hiring experts believe that the rise in attrition has been fuelled by the rising demand for automation and digitisation across all industry sectors worldwide. Owing to this, Indian IT players have strong order books looking for talent to work on those projects. Additionally, a few experts believe that many employees are dropping off of their IT jobs to pursue higher education. This has been one of the most typical trends observed at the beginning of every quarter.
Another way to consider the current situation is that higher attrition in any company suggests that there would be discrepancies in how the project is handled on the customers’ side, eventually leading to delays, cancellations, and an appetite to close new deals.
The domino effect has already started to manifest. For example, TCS, Wipro, Infosys and HCL added 60 clients in the $1 million plus revenue belt in the first quarter of FY-23, down from 91 clients added last year (FY-22 Q1).
Of late, several unicorns and pre-IPO startups have also been actively hiring and growing their teams, alongside offering better packages and promotions. However, there have also been negative sentiments in the hiring market due to the mass layoffs taking place in the startup ecosystem. This includes Ola, BYJU’s, Unacademy, Vedantu, Blinkit, Cars24, and others.
In addition, because of the faster adoption of AI and analytics, cloud technologies, automation, networking, data storage, and others, many companies are in a hurry to go to market and acquire a significant chunk of market share. Therefore, hiring qualified talent has become an important strategy for Indian IT companies.
On a hiring spree
While the attrition continues to increase, Indian IT is on a hiring spree. Nearly 40~50 per cent of employees leaving startups are getting absorbed by IT companies and GCCs. But, most of the IT heads mentioned that their focus is on campus hires instead of off-campus hiring.
For instance, Happiest Minds, which ended FY-23 Q1 with 4,188 employees, a net addition of 20 new members, plans to onboard more employees in the coming months compared to the previous quarter. The company looks to hire about 500 campus graduates in the upcoming quarter, with about 300 expected to join the team this month. Happiest Minds noted a moderate pace in hiring off-campus and lesser experienced people in the current quarter.
Cognizant, for FY-22 Q2, added about 900 employees, totalling an employee headcount of 3,41,100. Overall, the company plans to make 55,000 offers to new graduates in India for 2022.
TCS is also hiring massively. In FY-23 Q1, the company crossed the 600K mark, ending this quarter with 6,06,331 employees. “We continue to hire talent from across the world with a net addition of 14,136”, said Samir Seksaria, CFO at TCS.
Drop in attrition
At the financial earnings call, most IT companies said that they expect the attrition rate to decline in the second half of the financial year. For instance, Mindtree’s attrition rate increased to 24.5 per cent in FY-23 Q1, compared to 13.7 per cent last year. However, the company said it would require several quarters to stabilise the situation.
Meanwhile, TCS, which has the lowest attrition rate compared to its peers in FY-23 Q1, also saw an increase of 2.3 per cent compared to the previous quarter. “We think it will rise further in Q2, after which it should start tapering”, said Samir Seksaria, Chief Financial Officer at TCS.
TCS chief Rajesh Gopinathan said, “I think it will take another few more months before it will start to come down. So, till then, the margin pressures will continue, but we hope to sequentially improve from where we have taken that and will hit completely.”
TCS further claimed that its employee reward programme is much more holistic than its competitors, focusing on long-term benefits. With this in place, the company expects attrition to start cascading down in the next few months.
[Updated] August 3, 2022 | 12:12 PM | The Cognizant’s freshers hiring and headcount numbers have been updated to reflect correct numbers .