View from India: New work models and remote talent – pandemic outcomes

The IT services sector is on a rebound spree, as leading companies are hiring thousands of freshers amid the pandemic. This can be attributed to increased outsourcing and the acceleration of digital transformation services spurred by Covid. It is mainly felt in sectors such as banking, financial services and insurance (BFSI), healthcare, retail and manufacturing.

“With customers focusing on optimising costs, outsourcing of IT services is seeing a steady rise globally. The pandemic has opened up additional opportunities in digital services due to surge in remote working, e-commerce and automated services,” said Anuj Sethi, senior director, CRISIL Ratings, and added, “Ergo, deal wins by Indian players have expanded by 20 per cent on-year in fiscal 2021, with 80 per cent of these being digital deals across verticals.”

As reported in the media last week, Tata Consultancy Services (TCS) has hired 40,000 fresh graduates from campuses last year. TCS, India’s largest software services exporter, has gone on record stating that lateral hiring was essential as the company continues to invest in newer technologies. Other than that, tech giants such as Wipro, Infosys and HCL Technologies have picked up young talent from campuses, thereby increasing the employee headcount by a few thousands.

Besides fresh appointments, pandemic-ravaged 2020 has become the inflection point for the IT industry. The initial scepticism has given way to a new work order. Recognised as Work from Home (WFH), this has brought in a new dimension to IT India. WFH by its very nature has encouraged remote location professionals to join the workforce. As long as they have the skill sets, fresh graduates are on the payroll. Location-independent is a significant parameter for talent spotting. Another interesting spin-off is that women professionals are able to handle the work-life balance much better than before.

With WFH, hybrid work models have become a norm. New productivity measures, agile delivery models, intelligent workflows and remote connectivity are among its highlights. Hybrid models means people connect to a smart secure working system backed by automation and cognitive powered digital platforms. Everything and everyone are wired and connected. There’s a felt need to fast-track software solutions to digitise operations. The best way for companies to sustain themselves is by strengthening the digital ecosystem through diversification and international collaborations.

According to a CRISIL Ratings analysis, digital deals have ensured that the IT services sector remains profitable. The IT services companies have inked 45 per cent share in revenues in fiscal 2021, compared with 40 per cent in fiscal 2020. This encouraging growth will help IT services players maintain healthy operating margins as well as balance sheets. It will also lend positivity to the credit profiles of IT service providers.

The revenue growth in fiscal 2022 will be almost 400 basis points (bps) more than the growth of 6 per cent last fiscal and similar to 10 per cent growth logged over fiscals 2018-2020. Nevertheless, the revenue growth across business verticals will vary. For instance, Banking, financial services and insurance (BFSI), which accounts for 28 per cent of IT service revenue, will clock 13-14 per cent growth this fiscal (9 per cent in fiscal 2021). The projected growth is because of the rising share of digital transactions, continued regulatory compliance and data security. Retail and manufacturing, which together account for 30 per cent of revenues, are expected to recover 8-9 per cent after slowing down to 2-3 per cent last fiscal. While the rising number of online retail transactions and client push towards digital marketing will drive growth in retail, manufacturing could witness some pent-up demand from improving industrial activity globally. Healthcare, which accounts for 6 per cent of revenues, will sustain its high growth at 15-16 per cent, benefitting from higher spending on tackling Covid-19 and increasing adoption of virtual services.

“This fiscal, with gradual normalisation of businesses across the globe, a partial reversal of the cost savings logged last fiscal is likely. Also, with the expansionary recruitment phase, including maintenance of higher bench strength, the employee costs (67 per cent of the revenues), are expected to rise,” highlighted Rajeswari Karthigeyan, associate director, CRISIL Ratings. Nevertheless, players are likely to maintain operating margin at 24-25 per cent this fiscal as well, supported by higher growth, increasing share of digital deals and benefits of continued automation.

While the global economy is expected to perform much better in 2021, the recurrence of additional waves of the Covid-19 pandemic in US and Europe, key destinations for IT services, would be worth watching out for.