IT to remain net recruiter, automation to watch out for, says Kotak Institutional Equities

Recent layoffs in Indian IT companies are not different from the past and the sector will remain a net recruiter, but the numbers will be "calibrated" and automation impact will be crucial, says a report.

"We believe that these adjustments in staff strength are not materially different from earlier years. The IT industry will continue to be a net recruiter with numbers prudently and continuously calibrated by industry revenue growth," Kotak Institutional Equities said in a research note.

Indian IT companies generally let go of 1-3% employees after annual performance measurement and this year, there could be a slightly higher proportion of layoffs -- around 2-4% -- it added.

Some of the key factors slamming brakes on IT hiring include slowdown in company growth, decline in attrition rates, acceleration in localisation programme, employee reskilling and changes in the market place.

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"Industry headcount addition in 2017-18 would be similar to 2016-17 figures or marginally higher, assuming 8% revenue growth," the report said, adding that this positive will be partly offset by higher local hiring in the US.

The engineering and R&D services are expected to see 7-9% headcount addition while domestic IT and BPO would log a 5-7% rise. In IT services, there is likely to be 6-8% growth and headcount increase will be 2-3% lower than revenue growth. 

However, BPO is where the real challenge is, as nearly 38% of BPO export revenues are from customer interaction services, something that will be automated and taken over by chatbots over time.

"The industry will continue to be a net recruiter. However, it will continue to witness supply of talent and this might have negative implications for the engineering," the report said, adding "we expect automation to have significant bearing on headcount addition in the medium term".

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