As growth returns to the $254 billion IT industry, outsourcing majors are likely to add more frontline jobs at junior and entry levels. This will help reduce costs and bring younger and more flexible engineers in the fold, experts said.

Expansion of the workforce base will also directly stabilise margins with the operating metrics such as utilisation and offshore mix at near peak levels for most software service providers.

Experts say this is a key pillar for margin upside and companies are hiring freshers and investing in training facilities to stabilise the pyramid structure after a lull of the past almost two years.

Marking a reversal in the declining headcount for the software services industry, after nearly seven quarters, five out of India’s top six IT companies—Tata Consultancy Services (TCS), Infosys, Wipro, Tech Mahindra and LTIMindtree hired more than 17,500 employees in total in the September quarter.

This is followed by a pickup in fresher hiring with top four IT majors committing to recruit around 82,000 fresh graduates and ET’s recent report has projected the sector to surpass 150,000 fresher hires in FY25.

This is also a result of the growth revival seen in the ongoing fiscal year.

“For a long time, abundant labour supply at the bottom of the pyramid (workforce) has been the biggest source of competitive advantage from cost point of view for tech services players. Typically, even though it may take 3-9 months to get freshers billed onto projects, the moment they start billing to end clients they are at 2-3x of gross margins of a median employee, say in offshore location such as India,” said Somnath Chatterjee, founder of Prismforce, a software provider to the technology services sector.“Most operating metrics – e.g. utilisation, offshore mix – are at peak levels, so as growth improves margin pressure is likely to increase next year. We think the key here is to adjust the pyramid – the corporate staff structure – by hiring younger engineers to reduce costs. However, this is a long process and is unlikely to be immediately margin accretive,” as per an HSBC report on Indian IT services sector’s outlook for 2025 and beyond.

Overall, we expect margins to remain at 2024 levels. INR (Indian rupee) weakness is a key upside risk to margins and earning per share (EPS), the report added.

“Our biggest margin lever in the industry is growth. If we grow, our margin will improve because there is a certain fixed cost. As a company we have seen margin accretion quarter on quarter even in a tough environment. So, I’m very confident that with growth coming back, we should be on the positive side there,” Saurabh Govil, chief human resource officer at Wipro told ET.

The HSBC report expects FY25 ending March next year for the IT sector growth over a medium term to be around 5-6% compound annual growth rate (CAGR) and FY26 could be slightly better on a lower FY24-25 base.

IT spending by enterprise clients of software service providers is also expected to be decided in the January to March quarter (Q4) for banking, financial services and insurance (BFSI), retail /CPG (consumer packaged goods), hi-tech and public sector digital transformation.

Research and consulting firm Gartner India forecasts IT spending to increase by 11.2% from a year ago to total almost $160 billion in 2025, likely driven by spending in software and IT services.

Indian IT companies have been shifting focus from traditional services to high-margin digital services like cloud, AI, cybersecurity, and automation that have helped stabilise price/earnings-to- growth (PEG) ratios for companies that execute this transition well.

According to Chatterjee, amid macro changes and developments around generative artificial intelligence (GenAI), some IT companies are prioritising learnability and new age skills in their hiring mandates and often are getting pleasantly surprised by how select adaptive fresh graduates who have less unlearning to do, have embraced AI in their day-to-day work and coding pursuits.

GenAI is showing significant productivity gains for both entry-level and top developers, Chatterjee added.

As growth returns to the $254 billion IT industry, outsourcing majors are likely to add more frontline jobs at junior and entry levels. This will help reduce costs and bring younger and more flexible engineers in the fold, experts said.

Expansion of the workforce base will also directly stabilise margins with the operating metrics such as utilisation and offshore mix at near peak levels for most software service providers.

Experts say this is a key pillar for margin upside and companies are hiring freshers and investing in training facilities to stabilise the pyramid structure after a lull of the past almost two years.

Marking a reversal in the declining headcount for the software services industry, after nearly seven quarters, five out of India’s top six IT companies—Tata Consultancy Services (TCS), Infosys, Wipro, Tech Mahindra and LTIMindtree hired more than 17,500 employees in total in the September quarter.

This is followed by a pickup in fresher hiring with top four IT majors committing to recruit around 82,000 fresh graduates and ET’s recent report has projected the sector to surpass 150,000 fresher hires in FY25.

This is also a result of the growth revival seen in the ongoing fiscal year.

“For a long time, abundant labour supply at the bottom of the pyramid (workforce) has been the biggest source of competitive advantage from cost point of view for tech services players. Typically, even though it may take 3-9 months to get freshers billed onto projects, the moment they start billing to end clients they are at 2-3x of gross margins of a median employee, say in offshore location such as India,” said Somnath Chatterjee, founder of Prismforce, a software provider to the technology services sector.“Most operating metrics – e.g. utilisation, offshore mix – are at peak levels, so as growth improves margin pressure is likely to increase next year. We think the key here is to adjust the pyramid – the corporate staff structure – by hiring younger engineers to reduce costs. However, this is a long process and is unlikely to be immediately margin accretive,” as per an HSBC report on Indian IT services sector’s outlook for 2025 and beyond.

Overall, we expect margins to remain at 2024 levels. INR (Indian rupee) weakness is a key upside risk to margins and earning per share (EPS), the report added.

“Our biggest margin lever in the industry is growth. If we grow, our margin will improve because there is a certain fixed cost. As a company we have seen margin accretion quarter on quarter even in a tough environment. So, I’m very confident that with growth coming back, we should be on the positive side there,” Saurabh Govil, chief human resource officer at Wipro told ET.

The HSBC report expects FY25 ending March next year for the IT sector growth over a medium term to be around 5-6% compound annual growth rate (CAGR) and FY26 could be slightly better on a lower FY24-25 base.

IT spending by enterprise clients of software service providers is also expected to be decided in the January to March quarter (Q4) for banking, financial services and insurance (BFSI), retail /CPG (consumer packaged goods), hi-tech and public sector digital transformation.

Research and consulting firm Gartner India forecasts IT spending to increase by 11.2% from a year ago to total almost $160 billion in 2025, likely driven by spending in software and IT services.

Indian IT companies have been shifting focus from traditional services to high-margin digital services like cloud, AI, cybersecurity, and automation that have helped stabilise price/earnings-to- growth (PEG) ratios for companies that execute this transition well.

According to Chatterjee, amid macro changes and developments around generative artificial intelligence (GenAI), some IT companies are prioritising learnability and new age skills in their hiring mandates and often are getting pleasantly surprised by how select adaptive fresh graduates who have less unlearning to do, have embraced AI in their day-to-day work and coding pursuits.

GenAI is showing significant productivity gains for both entry-level and top developers, Chatterjee added.