Indian IT firms are likely to get a breather from high attrition levels in the coming quarters as effects of pay hikes and stable project pipelines kick in.
The sector, one of the biggest employers in Asia's third-largest economy, has seen firms scramble for skilled employees following a rise in outsourcing demand but has also been hit by increased attrition levels.
While attrition is slightly high in the industry, it will start to slow down in the coming quarters as almost all the companies have finished salary hikes and the effects will start to show from October, L. Ravichandran, president of IT services at Tech Mahindra said.
The IT firms are sending the right message to the employees by boosting project pipelines, which gives a sense of stability, he said at the Reuters Investment Summit on Wednesday. "When people see stability and pipeline, they don't jump."
In June, industry body Nasscom had forecast that wages in the sector, which employs more than 2 million people, could rise 10-20 percent in FY11 and said attrition level as of March was up by 8-10 percentage points over the same period last year.
Companies have pulled out all stops to make their employees feel valued, from providing stock options to morale-boosting initiatives.
HCL Technologies Ltd recently came out with the slogan "Employee first; customer second," indicating the growing importance of employee-retention plans.
Analyst Sandeep Muthangi at brokerage IIFL expects attrition to come down in the next few quarters as frequent job switches by employees have raised wages to unaffordable levels.
"We should stop the wage raises now only, otherwise our costs will become high, our margins will be slim and we will start losing business to China or Philippines. The speed of salary increases have started hurting us already," said Deependra Chumble, hiring manager at Hexaware Technologies Ltd.
The average pay hike in the sector this year was 10-13 percent for offshore employees and 2-3 percent for onsite ones, Anand Rathi Financial Services analyst Naushil Shah said.
Wages at Indian software companies had been rising by 10-15 percent annually before the slowdown.
BRISK HIRING
Indian IT majors like Infosys Technologies, Tata Consultancy Services and Wipro have been recruiting heavily after the global economies started treading the recovery path.
TCS has already raised its hiring target for 2010/11 by 10,000 to 40,000 and Infosys has forecast to hire 6,000 more to an annual hiring projection of 36,000.
"About 250-300 people are joining the company every month. We are going to see continuous hiring," Tech Mahindra's Ravichandran said.
MindTree Ltd's Chief Financial Officer Rostow Ravanan said the company had achieved its FY11 hiring target of 3,500 staff.
"The demand for skilled workforce has picked up quite a bit and the supply is not there as of now. So the attrition levels are high, therefore the premium paid to some of the skills is very high," Hexaware's Chumble said.
Chumble said Hexaware will hire 20 percent more than was planned at the beginning of the fiscal year.