IT companies to ‘right size’ pyramid amid rising employee costs: Report

IT companies to ‘right size’ pyramid amid rising employee costs: Report
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3 Jan, 2022

As skill-specific cost has increased in the market, Indian IT services companies are expected to try to “right size” their employee pyramid in order to offset the increase, according to a report by Motilal Oswal Financial Services Ltd.  

Right-sizing of the pyramid could mean hiring of more freshers as they come at a lower cost than experienced professionals. People with specific niche skills such as artificial intelligence (AI), machine learning, and data science are commanding high salaries in the market as they are in short supply.     

“Hiring across our IT coverage will continue to remain high as companies try to fulfill demand and backfill growing attrition, which will be a key focus area for investors. The resurgence of covid-19 cases remains another risk on the supply-side,” the brokerage firm said.  

After a few quarters of accelerating attrition, Motilal Oswal expects companies to see a stabilization in attrition, although at elevated levels. “This should start reflecting first in qualitative commentary as most companies report LTM (last twelve months) attrition.”  

The demand environment is likely to outweigh seasonality and companies are likely to report a strong third quarter earnings which is seasonally weak due to furloughs and holidays in key markets. The strong demand environment is expected to continue in Q3 FY22, with tier II players again outgrowing tier I companies within our coverage universe, according to the brokerage firm. 

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“We expect a strong initial outlook for FY23, with companies maintaining their view of multi-year growth tailwinds on the back of cloud migration. Guidance for Q4 FY22 is also expected to be positive on the back of continuing deal wins,” Motilal Oswal said.