Rewind 2023: Global slowdown has multiplier effect on IT cos

There are three things that stand out this year. Firstly, engineering services segment remained a high growth area in this environment. Secondly, this year saw a lot of leadership changes in the IT firms. Thirdly, GenAI emerges as a significant technology area - Pareekh Jain, founder, Pareekh Consulting, tells Bizz Buzz

Challenging Year

• Most Indian IT firms likely to post single digit revenue growth
• Overall headcount drops with fresher hiring taking a hit
• Unusual CXO level changes seen in 2023 with over 20 top level exits
• Demand environment unlikely to change in first half of 2024

Bengaluru: Indian IT industry faced slowdown in 2023, after previous two years of high growth, as global enterprises defer technology spend amid an uncertain economic environment.All projections indicate that next year may not be very different from 2023 with some experts predicting recovery towards the second half.

“Indian IT industry’s growth cooled down after the high growth of 2021 & 2022.There are three things that stand out this year. Firstly, engineering services segment remained a high growth area in this environment. Secondly, this year saw a lot of leadership changes in the IT firms. This was more than last two years. Thirdly, generative AI emerges as a significant technology area this year with all companies developing their offerings around it,” Pareekh Jain, an IT outsourcing advisor &founder of Pareekh Consulting, told Bizz Buzz.

Amid low IT spend by global enterprises, most Indian IT firms are likely to post low single digit revenue growth rates in the current financial year. Such subdued demand environment has triggered a lot of leadership changes in the top management level.

This year, Indian IT firms have seen unusual CXO level movement. Infosys has witnessed around 10 top-level exits with the latest being its Chief Financial Officer Nilanjan Roy resigning from the company. Earlier this year, Mohit Joshi and Ravi Kumar S, both presidents at the Bengaluru-headquartered company tendered their resignations and joined rivals Tech Mahindra and Cognizant. Similarly, Wipro has also seen close to dozen CXO level exits this year with most prominent being its CFO, Jatin Dalal stepping down from the company. Similarly, in a surprise move, Rajesh Gopinathan stepped down from the CEO role of TCS this year.

“One has to see how these companies, where the leadership changes have taken place, will perform in 2024. Companies like Cognizant, Tech Mahindra and Infosys will be on radar in this respect. We also have to see how gen AI plays out in the coming year,” said Jain.

On the hiring front, 2023 also proves to be a bad year. Indian ITfirms, which hired record numbers of employees last year, put a deep brake on staff addition this year. Top four IT firms cumulatively cut their workforce by about 38,950 employees in the first half of thisfiscal. Fresher hiring has also hit a roadblock with most IT companies skipping campus placements for this year. “All indications are that it may not change substantially next year,” a hiring manager said.

On the operating margin front, this year saw margins coming under pressure as revenue growth slows down. High wage cost owing to record hiring proved to be another drag. This prompted IT firms to reduce headcount by halting hiring.

As the next year approaches, experts are of the opinion that any change in demand environment will hinge on sentiment changes in the US and European economies.

“Recent Accenture results indicate there is no change on the overall environment. However, the US Federal Reserve announcements to reduce rates may change sentiments, leading to recovery in the second half of 2024. If the sentiment changes, then IT spending will increase,” Jain added.