IT firms hunt for talent, pay a high price

Indian IT companies may be trying to recruit more freshers to rein in depressing profit margins, but as CNBC-TV18 points out, a nasty surprise may be in store as fresher salaries are likely to soar high in 2008.

There is an increased demand for these young IT professionals. Hit by the rising rupee, Indian IT companies are all set to increase their recruitment of these people who cost less than employees with more than two years of experience.

But that might not be the case for long according to a research report put out by brokerage firm Edelweiss.

That is because fresher salaries may increase, going forward, given that MNCs are targeting the same talent pool.

Between themselves, MNCs like IBM, Accenture and Capgemini are set to hire some 2 lakh people by 2009. And that is going to lead to wage inflation at the fresher level.

Edelweiss says a look at salaries offered by Indian majors - TCS and Infosys, to graduates set to join in 2008 and 2009, shows an average hike of 40 per cent.

Also, the recruitment patterns of these companies shows an interesting trend. Aided by a gradual increase in fresher wage hikes, TCS has hiked its offers per college to 78 offers per college for fiscal 2009 compared to 53 offers in fiscal 2008.

Infosys, on the other hand, has reduced its offer per college to 26 offers per college for fiscal 2009 from 46 offers per college in fiscal 2008.

Edelweiss adds that assuming Infosys' parameters of employee growth, hiring pattern, fresher mix, wage inflation, utilization and billing rates, IT companies would be spending as much as 5 per cent of their revenues on employees in the next three years.

Though, the impact of this inflation will be negligible in the first two years, in the third year, the impact might be over 100 basis points, at least for Infosys. Smaller IT companies may see an impact of as much as 200 basis points on their margins if the same trend continues.

IT companies are caught in a logjam. If they recruit freshers, salary overhead shoots up to an unmanageable proportion and if they don't, they fall short of manpower. The results will reflect only after two to three years.