University Students May Face Tough Times As Tech Players Infosys, TCS, HCL Tech Likely To Skip Hiring Ahead

Thousands of employees have exited tech biggies like Tata Consultancy Services (TCS), Infosys and HCL Tech during the September quarter of FY24, amidst a delayed campus recruitment drive. These companies have also hinted at assessing their hiring plan on a quarter-on-quarter basis depending upon the challenging environment that has come as a hindrance in their path of fruitful growth ahead. Indian IT sector is among the largest recruiters of campus students, however, it looks like these graduates are in for tough times in the near term.

Campus hiring is a very popular recruiting method which is conducted within universities or other educational institutions where companies flood in to interview these students for hiring as interns and entry-level positions. The majority of these freshers step into the professional world after graduating.

Indian IT companies are the largest recruiter on these campuses with Tata Group-backed Tata Consultancy Services (TCS) holding the record of hiring the most graduates time after time. Other tech players like Wipro, Infosys, HCL Tech, Cognizant, Accenture, Mphasis and Capgemini are also among major recruiters. Usually, campus hiring begins between December to February of every year.

However, this year, it seems like campus students are going to be disappointed with the lack of interest in hiring from Indian IT firms. The reason behind lacklustre hiring could be attributed to the challenging macro conditions which have tossed discretionary spending from clients and that has led to slow growths for IT companies. The near-term outlook remains challenging for them!

The Current Hiring Situation...

For the fiscal year FY24, Indian IT companies are expected to make fewer hirings. They have already slowed down the process of hiring in FY23! By the end of financial year 2022-23, the three Indian IT giants, TCS, HCL Tech and Infosys recruited 68,886 employees, and this figure is not even half of what they hired in FY22 to the tune of 1.97 lakh people.

The first two quarters of FY24 has seen similar trends!

After Q2FY24, many tech giants like TCS, Infosys and HCL Tech have indicated their plans for campus hiring during the 2023 season. These are the top 3 Indian companies in the IT sector in terms of market share, and the three have recorded massive job cuts in Q2FY24.

All three IT companies have also reported a significant drop in attrition rate. In Q2FY24, the TCS attrition rate stood at 14.9% for the last twelve months, compared to 17.8% in Q1FY24. While Infosys attrition rate is down to 14.6% versus 17.3% in the previous quarter. Also, HCL Tech's attrition eased to 16.3% as against 19.5% in Q1FY24.

TCS:

In Q2FY24, TCS let go of 6,333 employees taking its total headcount to 608,985 as of September 2023, compared to the headcount of 6,15,318 as of June 30, 2023. This comes after TCS hired a meagre 523 employees in Q1FY24, which was a 96% annual drop in hiring of 14,136 employees in Q1 of FY23.

For the TCS employees count, Nuvama said, "Strategy of proactively hiring freshers is paying off now. With those talents coming onboard and dip in attrition led to a decline in headcount. TCS hiring no's are less than their attrition. Attrition is down to 14.9%, back to historical range."

Infosys:

This number is much higher in Infosys who recorded a staggering 7,530 drop in headcount to 3,28,764 as of September 30, 2023, compared to the headcount of 3,36,294 as of June 30, 2023 quarter. Unlike TCS, Infosys has been letting go of its employees for the third consecutive quarter now. In Q1FY24, the headcount shrunk by 6,940 employees, followed by 3,611 fewer employees in Q4FY23.

Brokerage Nirmal Bang on Infosys said that the net reduction for the last 9 months stands at 18,081 employees. It added that Infosys indicated, it hired ~50,000 freshers in FY23 and will not be going to campuses in FY24 as it has a substantial bench of freshers. Infosys also mentioned it will assess the situation on a quarterly basis and take a call on additional hiring in the future.

HCL Tech:

Coming to HCL Tech, the Shiv Nadar-backed company witnessed 2,945 fewer employees in Q2FY24. This number is much lower compared to its rivals TCS and Infosys, and also lower than the net reduction of 3,674 employees HCL recorded in Q1FY24. HCL has witnessed a drop in its headcount for two consecutive quarters, to 219,325 employees by the end of the September 2023 quarter, from 225,944 employees by the end of the March 2023 quarter.

According to Nirmal Bang, HCL Tech indicated that the net reduction in Q2FY24 was on account of backfilling the vacancies with freshers who have already been trained. Some of the new work is also being done by employees who were already part of HCLT. It believes that the investment in freshers over the last few years is now helping HCL Tech improve profitability as it hired 27,000 freshers in FY23.

Interestingly, the brokerage also mentioned that HCL Tech stated that it has hired ~5,200 freshers in 1HFY24 and will hire a total of 10,000 freshers by the end of FY24. HCL Tech continues to visit campuses to hire freshers.

But, HCL Tech has trimmed its FY24 revenue growth guidance in constant currency terms to 5-6% while maintaining EBIT margin guidance in the range of 18% to 19%. That being said, HCL Tech's freshers hiring will be keenly watched in the second half of FY24.

What Should Campus Students Expect This Year?

Prashanth Tapse, Senior VP (Research), Mehta Equities said, "We believe that the challenging global macro environment on the back of lower than expected digital spend in the western countries and lower growth rates than planned is putting pressure on IT giants. Before domestic IT companies, global leader Accenture hinted at the markets by skipping pay hikes, and reducing bonuses and promotions in India & Sri Lanka. Following global trends domestic IT companies like TCS, Infosys and HCT Tech announced they might miss campus hiring."

Tapse added, "Global slowdown would definitely impact campus hiring which is due to economic uncertainties, companies will remain cautious with their hiring plans due to a weak deal pipeline amid lingering recessionary fears in the US. Cut in IT revenue guidance for 2023-24 says the global growth would be muted. I believe with the current order pipeline and workforce utilisation levels, it has enough room to manage the current project load and the companies have increased its focus on cost efficiency and automation process, in which it has an advantage and is winning mega deals going forward."

So when will hiring come back on full swing? Dhruv Mudaraddi, Research Analyst, StoxBox said, "In a tough global environment with a slow new deal conversion for legacy projects, we believe that the focus of major IT companies is to improve their operational performance. As a result, we saw a slower hiring, resulting in reduced bench strength and higher employee utilisation levels. However, we see hiring to make a comeback after a quarter or so as businesses shift focus from cost-cut to transformational projects and the outlook for the US economy improves."

Cracks have been visible in Indian IT firms' hiring plans since the start of FY23 due to geopolitical tensions, intense macro uncertainties, and rate hike cycles. Still, these Indian companies did not lay off their employees even when global tech giants like Amazon, Meta, and Microsoft among others carried amassed job cuts, however, the hiring process was quite dull and slower.

The problem escalated when the banking crisis in America rocked the financial market in late March 2023.

According to data from TeamLease Digital which was released in May this year, the Indian IT companies are expected to decrease their campus hiring by 40% in FY24 due to reduced client orders, and uncertainties coupled with strong bench strength.

The tech firms are expected to hire 155,000 students from the 2024 batch of engineering campuses, lower by nearly 33% compared to 230,000 from the batch of 2023.

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