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Indian Tech Companies Business Operations Focused on Resilience and Building Capacity for Future Demand
Indian Tech Companies Business Operations Focused on Resilience and Building Capacity for Future Demand

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As the Year Progressed Indian Providers Started Witnessing Improved Headroom on Margins

The year began with a key challenge for the industry on the talent side which was building pressure on margins amidst a significant increase in hiring, salary hikes and higher subcontracting costs. Moreover, companies were unable to pass through these higher input costs to customers.

The second quarter of the year started showing improvement in margins with the support of key margin levers including stabilizing attrition and an improved employee pyramid from increased freshers hiring which moderated in FY23 but remained ahead of historical levels.

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Moreover, this trend is expected to continue in the coming quarters as employee and subcontracting costs have started showing a declining trend as a percentage of revenues for top companies.

  • Companies are able to contain their employee costs despite wage hikes and attrition back-fill through pyramid optimization (fresher hiring). Moreover, this would be further supported by bench reduction in the coming quarters as the majority of freshers hired last year to become billable.
  • Subcontractor costs have increased by 1-3ppt across companies versus pre-pandemic levels due to delayed visa processing and travel restrictions. Considering these restrictions are being eased, these costs are expected to come down in the coming quarters

Overall, these factors support a lot of headroom for companies to improve their margins which we have seen for most companies in the third quarter results.

To know more about how the third quarter results have shaped up for the Indian technology industry stay tuned for our soon-to-be-launched quarterly report. For the second quarter FY2023 Indian Technology industry numbers read our Industry Quarterly Review.

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Neha Jain
Senior Analyst

Neha Jain

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