What is attrition in the IT industry pointing at?
We have recently seen results of IT majors in India, with most IT companies showing higher attrition numbers. Infosys reported 25% attrition in Q3FY22, while Wipro reported 22.7% in the same period. While revenue growth is strong, higher attrition points to something interesting. Some of this attrition is seemingly being contributed by the high job offerings and salaries in the Indian Startup Ecosystem, which has been flush with funds in the recent past. This has resulted in workforce shifting from traditional IT companies to the new age Fintech, Edtech, ConsumerTech players.
While this is a welcome change, remember, Employee cost is the largest cost for IT firms. And if the trend here is sustained, we might see an inflationary impact on the wages in the IT industry. This being the single largest cost, will definitely have an impact on margins, unless the companies are able to pass on the costs to the customers.
Add to this the fact that IT companies had been saving on travel costs for nearly 2 years. As the world opens up, this cost takes away nearly 1.5-2% from the operating margins for the IT majors. While demand remains strong, some of these cost pressures are going to create a problem for the IT industry.
On a side note, what are the other effects of this increase in salaries? Do you think this will impact real estate and housing industry in tech hubs such as Bangalore and Hyderabad? Would the tech jobs increase for freshers from engineering colleges? Would consumption of certain products increase? What other segments do you think get impacted? Just reply to this email with your thoughts.
Did you know?
Wipro, India’s IT Major, was incorporated in 1945 as a company named Western India Products, from where the acronym WIPRO came. It used to manufacture vegetable and refined oils. In the 1970s, the company had its foray into IT industry. It later demerged its non-IT businesses into a company named Wipro Enterprises in 2012.
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