Amidst the pandemic gloom, the Indian IT services sector has been spreading some cheer, with plans to hire thousands of engineers in the coming months. Last week, TCS, Infosys and Wipro kicked off the results season for the $200 billion industry with hiring announcements. TCS and Infosys said they would hire 40,000 and 26,000 freshers, respectively, this financial year. Wipro said it would onboard more people than it did last year. Earlier, HCL Technologies, Accenture and Dell had all announced plans to expand their employee base in India.
Yet, it would be premature to infer from these statements of intent that they will manage to sustain this hiring momentum. How the hiring trend of Indian IT services shapes up in the coming years will depend on deal flow from clients, margin dynamics and the visa policies of the new Joe Biden administration in the US.
For now, hiring in Indian IT services is picking steam. Of the 19 sectors tracked by jobs portal Naukri.com for hiring trends, the February 2021 hiring index value was higher in only 3 sectors as compared to February 2020. One of them was IT services. For March 2021, though, this number increased to 11. IT services once again featured and showed the highest increase among the sectors tracked. In March, the hiring index for the IT sector grew 44% year-on-year. The index for the IT sector grew 11% in March 2021 over February 2021, compared to 3% growth for the overall jobs index.
Big Wins
IT hiring is primarily driven by revenue growth. In 2020-21, Indian IT registered negative growth in the pandemic-hit June and September quarters. Revenues picked up in the December quarter and are expected to jump in the March 2021 quarter, partly due to a lower base effect. India’s top three IT services companies—TCS, Infosys and Wipro—all reported a jump in earnings, mostly driven by large deals. For example, $2.6 billion of the $7.1 billion contracts that Wipro won in the last two quarters were from large deals.
Covid-19 accelerated digitization plans of IT customers. However, this buoyancy is tempered by one view that customers have merely advanced big IT spending, and there is no structural shift. If so, the sector could see budgetary pullbacks in a three to four year time-frame, leading to a slowing in IT hiring. The other, optimistic view sees digitization as a long road, sustaining demand for talent.
Offshore Boost
Most clients of Indian IT companies are overseas. Indian companies do their work either from India (offshore) or at client offices (onsite). Due to the pandemic, and the openness to remote working, the offshore component is expected to rise further. Offshore efforts earn a lower billing rate, but higher margins. Offshore billing hours at Infosys increased from 72.4% in the March 2020 quarter to 75.7% in the March 2021 quarter. Amid greater offshoring, profit margins of Indian IT companies have risen. But again, this linkage needs to be seen in context. While more work was done offshore, billing rates were not renegotiated, giving margins an extra bump. It also reflects lower travel and other overheads during the pandemic.
The proportion of hiring in India is likely to increase in the coming quarters. In 2020-21, 19,000 of the 21,000 people that Infosys hired from campuses were from India. In 2021-22, it expects 24,000 of 26,000 hires to be domestic.
H1-B Wall
At the same time, IT companies are under pressure to increase hiring abroad instead of sending coders from India on H-1B visas. This is reflected in the visa rejection rates of the US during the Donald Trump presidency. Indian IT has also been facing reputational challenges from court cases alleging discrimination.
The new Joe Biden administration is expected to be more liberal with H-1B visas. The US will need the 56,000 people with computing skills on H-1B visas (of the 85,000 H-1B visas issued by it annually) since there is a shortage locally, says a recent report by the National Foundation for American Policy (NFAP), a not-for-profit.
Ultimately, Indian companies have to find a balance between hiring in the US and sending Indians on H1-B visas. The leading ones have been hiring more in the US, and will have to continue to do so unless they manage to move onsite work offshore. The ongoing pandemic might just have provided a proof-of-concept on how that could be done.
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