In the people search, the auto complete does not work as it works on the default confluence search.
Also, if i do not enter the correct first name, the search result does not give any result. The substring does not work. Is there a way we can enable it? It is difficult for the users to type in the full name of the person they are searching for and its a nice to have feature.
I don't think there is a way to customize this. As far as the Atlassian documentation goes, it seems you have to correctly enter the first name or last name:
The Global Search bar in the upper right hand corner also searches through people, so you can start typing a user's name and it will pop up:
If you need this type of search in the People Directory, you can try out a variety of add-ons in the Marketplace to see if they will meet your needs (they will probably give you more functionality around user profiles, which is cool, too).
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