Tech hiring in India expected to remain muted until demand outlook improves: ICRA

Tech hiring in India is expected to remain low until the demand outlook improves and it is likely to pick up materially only by the end of first half of fiscal 2026, reported ICRA on Monday.

Lower discretionary technological spending by customers in key markets of the US and Europe, considering an uncertain macroeconomic environment, has led to moderation in demand for IT services companies in the country over the last 6-8 quarters. Higher inflation and interest costs also exerted pressure on clients across key industries, resulting in increasing focus on cost optimisation, business critical projects, and deferment of large discretionary spends, it said.

According to ICRA analysis, moderation in demand coupled with the increase in utilisation of excess manpower added during FY2022-FY2023 exerted pressure on hiring by IT services companies through FY2024 and Q1 FY2025. ‘‘While there has been some recovery in Q2 FY2025, ICRA expects hiring to remain low in the near term until the growth momentum picks up by H2 FY2026,’‘ it said.

Also, employee attrition has declined in recent quarters beginning from Q3 FY2023 for most Indian IT services companies, which has helped reduce the demand-supply mismatch witnessed in the industry, after the Covid-19 pandemic.

On average revenue per employee, ICRA observed that it has been stable around $ 50,000 over FY2020-FY2024, however, this metric would show steady improvement if assessed on revenue in rupee terms due to depreciation of the rupee against some key foreign currencies over this period. The number of employees required for every $100 million of revenue generation has also largely remained stable at around 2000 over the same period. However, the same parameters assessed on revenue reported in rupee terms would show steady improvement over this period, primarily due to depreciation of the rupee against some key foreign currencies, it said.

Also, employee cost as a percentage of operating income for ICRA’s sample set increased steadily to 58% in FY2024 from 54% in FY2021, due to moderation in revenue growth coupled with wage cost inflation amid surge in attrition levels till H1 FY2024.

‘’While this has exerted pressure on operating profit margins (OPM) of the companies, they have been able to partly offset the same through increased operating efficiencies and employee utilisation levels. ICRA expects the OPM for its sample set companies to largely remain stable at 21-22% over FY2025–FY2026,’‘ it predicted.