IT hiring to slow down as bench strength swells

Bengaluru: Indian IT services firms are slowly witnessing rise in bench strength that gives an early sign of impending slowdown in demand in coming months.

According to multiple sources in the know, such rise in bench strength may lead to slowing down in hiring of IT engineers. Most IT companies maintain employees in reserve, which is called as bench. Such reserve employees help companies to meet any sudden demand that comes up from clients.

"More people are moving to bench as startup-related projects are getting impacted. Bench strength is increasing for many IT companies now. The trend of aggressive hiring is likely to cool down in coming months," said a source, who works with both Indian and US-headquartered IT firms for hiring of engineers.

"US is already witnessing laying off due to slowdown. If it spreads, this will definitely have impact on Indian IT industry in coming days," he added.

Amid geo-political uncertainty and an impending economic slowdown, global brokerage firms have already raised red flags on growth prospects in FY23. JP Morgan has already downgraded the Indian IT sector to 'underweight' in recent past.

"We see peak revenue growth behind us and earnings before interest and taxes (EBIT) margins trending down from inflation, mean revision. While the bottom-up outlook remains for most services, software, and SaaS names YTD, and the tech spending cycle remains buoyant structurally, we feel there are more downside risks to the current earnings assumptions," analysts of JP Morgan wrote in a note.

Indian IT sector is already facing record employee attrition numbers in the last one and half year. While Infosys saw its attrition close to 28 per cent in March quarter of FY22, Wipro reported an attrition rate of 23.8 per cent during this period. Experts believe that any slowdown in demand will help IT firms contain attrition in coming quarters.

"Attrition is likely to come down in the coming quarters. Because any slowdown in demand will definitely lead to less opportunities in the market. So, employee churn is expected to come down," said the person.

Currently, domestic biggies are seeing their utilization rate hovering above 80 per cent. Though companies have some levers to reduce such utilization levels, but lack of projects may result in employee optimisation.

"IT spend in Europe has currently paused with CIOs rethinking their IT budgets and elongating their decision-making process," ICICI Securities said in a note cautioning a slowdown in revenue growth during FY23.