Cautious outlook

Activity in IT sector is expected to slow

An apparent slowdown in hiring across the IT sector indicates caution. There is a fair amount of anecdotal evidence and data pertaining to this slowdown, and it reflects concern that a growth recession across the global economy is going to affect demand for IT services, at least through the next several quarters. At fresher level, various engineering colleges are reporting that large IT firms such as Infosys and Wipro have not arrived this year for campus interviews. Entry-level placements are, therefore, likely to be down this academic year, and given that freshers require months of training after induction, it may be assumed that large IT services outfits are projecting a slowdown that lasts an appreciable period.

Info Edge, the parent of jobs portal Naukri.com, has called out weakness, specifically across the IT sector, in its management guidance, alongside the reported December-quarter results. Since Naukri is the largest jobs portal in India, and 36 per cent of its volumes is contributed by IT hiring, this indicates significant weakness. Indeed, TCS reduced headcount in Q3, for the first time in many quarters. Infosys’ net addition was only 1,600 employees during the same quarter. Moreover, the Naukri guidance indicates that the reluctance to hire is not merely at entry level. It features a large component of experienced mid-level and senior people. Other anecdotal examples also indicate the number of IT personnel seeking a change in employment may exceed the number of jobs available. There are other reasons that point in this direction. There are far fewer start-ups launching now, which removes one major source of employment for IT personnel.
 

There have been massive layoffs across digital giants such as Facebook, Twitter, and Google, releasing many thousands of experienced personnel, all of whom may not have found alternative employment. There are far fewer “gig” listings on sites that match IT freelancers with contractual work, and major companies are not complaining about the scourge of moonlighting anymore. Taking all these indicators together, it seems likely that the global IT industry is looking at a period of lower activity. This is also visible in guidance from the IT majors after their recent results, when they flagged slowdowns across various verticals. Most companies seem to have hit pause on discretionary IT spending, which means that the projects being commissioned are those that have an immediate positive impact on earnings, or help to reduce expenses. Digitisation efforts continue, for example, as do movements to the cloud, and cyber-security continues to see strong demand.

Since activity in the IT industry correlates very strongly to economic activity in general, this is a signal of a likely slowdown. Most of the revenue of the Indian IT industry comes from North America, with Europe being the second-largest contributor in terms of regions. But all economic regions are affected. Macro trends indicate that western Europe, for example, is still reeling from the impact of the Ukraine War, while the UK is struggling to cope with the fallout from Brexit. Japan is suffering from inflation as is the US. China is emerging from a long period of lockdown. Unless the IT industry as a whole has misread short- and medium-term demand, the employment patterns do indicate things could get worse before they get better. In terms of macroeconomic impact, lower services export earnings can put pressure on India’s external accounts.