Indian IT hiring to stay subdued until growth revives in FY2026: ICRA
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The Indian IT services sector is likely to witness subdued hiring in the near term, with growth momentum expected to resume only by the second half of FY2026, according to a report by credit rating agency ICRA.
The uncertainty surrounding policy changes under the new U.S. administration is also expected to impact the industry, making it a critical factor to monitor.
Over the last 6–8 quarters, Indian IT companies have faced reduced discretionary technology spending from clients in key markets like the U.S. and Europe. This downturn, caused by macroeconomic uncertainty, has resulted in a marked decline in demand. Furthermore, a focus on increasing employee utilization and decreasing attrition has added to the slowdown in hiring.
While there was a marginal recovery during Q2 FY2025, ICRA anticipates continued cautious hiring until the sector regains its growth trajectory in H2 FY2026.
The moderation in demand, combined with the utilization of excess manpower hired during FY2022 and FY2023, has led to negative net employee additions for seven consecutive quarters through Q1 FY2025 among major IT firms such as HCL Technologies, Infosys, Tata Consultancy Services (TCS), Tech Mahindra, and Wipro.
As generative AI (Gen AI) adoption grows, IT companies are increasingly investing in employee upskilling to tap into AI-driven opportunities. However, this trend is expected to moderate fresh hiring levels compared to the pre-pandemic era. The impact of Gen AI on improving employee productivity is projected to become evident over the coming years.
Revenue per employee, a critical metric for productivity, has remained stable at approximately $50,000 annually between FY2020 and FY2024. However, when measured in rupee terms, this figure has shown steady improvement due to the depreciation of the Indian rupee against major foreign currencies.
The sector experienced peak attrition rates of 23% during Q4 FY2022 and Q1 FY2023, driven by aggressive hiring and a demand-supply mismatch. However, as hiring slowed amidst moderating demand, attrition rates began to stabilize.
By Q3 FY2024, the last twelve-month (LTM) attrition rate for the sample companies fell to around 13%, significantly lower than the pre-pandemic level of 18% recorded in Q1 FY2020.