Hiring Of IT Employees Reduce, 2nd Month In Row: Low Attrition Is The Main Reason? What Does This Mean?

Even though IT services companies are hiring in thousands, their rate of hiring seems to have been slowed down recently. According to a job portal index, which tracks job postings for different sectors on a monthly basis, hiring in the information technology (IT) sector has dropped for a second straight month in November.

IT services hiring slows down

The Naukri JobSpeak index reported the second straight month of decline in postings from IT services companies in November. According to Naukri Jobspeaks index, hiring activity in the sector is down 26% from the all-time high activity seen in September this year. The hiring activity is also at the lowest level in seven months.

Historically, IT attrition activity has had a high correlation with the JobSpeak index, and hence, any moderation in the index level is considered to be an important lead indicator of employee movement within the IT Services industry.

It should be noted that lower attrition might reduce pressure on operating margins as hiring and training of new employees incurs huge costs. It impacts the profitability of IT services companies – as an increase in attrition has resulted in a sharp jump in both hiring activity as well as cost per employee across the industry.

IT sector has witnessed massive haring in last one year

Still, IT industry is giving contracting results, on a trailing 12-month basis, the attrition rate of Tata Consultancy Services Ltd (TCS) increased to 11.9% in the September quarter from 8.6% in the preceding quarter. More than 43,000 freshers joined TCS in the first half of this year. The company has already crossed its hiring target and is expected to take in 35,000 freshers in the second half of FY22.

Notably, Bengaluru-based Infosys Ltd has upped its hiring target for FY22 to 45,000 from the earlier projection of 35,000 on the back of high demand and attrition. For the September quarter, the attrition rate of Infosys rose to 20.1% from 13.9% in the preceding quarter.

Attrition in IT services companies can have a significant impact on day to day business of companies. The higher pandemic rate has caused a global panic among customers as it may slow down their digital transformation journey. Hence, any decline in attrition in the sector could be taken positively by investors and this will result in a further re-rating of the stocks.