India’s IT service providers may face a talent crunch for the next few quarters with rising voluntary attritions (exits) impacting their margins and  big deal signings across some verticals, top industry experts tracking the sector stated. 

India’s IT service providers are facing a stiff challenge from Global In-house Centres (GIC) and captives (offshore centres performing certain operations of global firms) as well as a rising number of tech unicorns that are actively recruiting skilled professionals. 

Based on the sources, India’s IT biggies, are unable to match the employee remunerations being offered by GICs as well as big start-ups, which has led to a spike in voluntary attrition over the past few quarters.

Unlike the 4-8 per cent salary hikes announced by IT majors last year, global rivals as well as tech unicorns are currently offering double digit remuneration hikes for AI, cloud, and cyber security skills.

Industry experts said that the talent crunch the sector is facing right now will adversely impact their deal signings for next few quarters due to supply issues, and will also lead to a dilution of margins for FY22.

Infosys and Wipro the IT service firms reported higher attrition rates for Q4 FY21, even as Tata Consultancy Services (TCS) and HCL Tech were able to retain their employees exits dropping in Q4.

Attrition rates for mid-tier Indian IT companies such as L&T Tech, Persistent Communications, Cyient, and Zensar rose even more sharply, with a few witnessing a double-digit percentage drop in FY21 headcounts, HDFC Securities’ data showed. Cognizant, which saw a flurry of top level exits, saw as many as 3,000 exits in 2020. 

“(On the) supply-side, in some cases, commercial opportunities were forgone due to an inability to source talent. The impact on attrition rates and absenteeism and client delivery remains somewhat uncertain. Attrition peaked in March, slowed in April and continues to slow in May,” HDFC Securities stated.

Tech Mahindra, which drives a major part of its revenues from Business Processing Outsourcing services, saw a headcount drop of 3.3 per cent with 3,994 exits, while L&T Tech’s headcount reduced by 2.6 per cent  year-on-year. 

Pareekh Jain, CEO, Pareekh Consulting, said that at the onset of Covid-19, companies had laid off employees fearing a drop in demand.

“However, a rebound was witnessed post Q2 FY21, especially due to the rapid scale of digitisation of businesses and a shortage of skills in AI, cloud, cyber security, and IoT. The salary hikes being offered by the big companies has not been at par with the global firms, or even startups, leading to a flurry of exits”. 

The inability to source talent resulted in commercial opportunities foregone in some cases, HDFC Securities said, noting that attrition peaked in March, slowed in April and May.

“Impact on attrition rates, absenteeism, and client delivery remains somewhat unknown,” it showed.