Report: Second straight year of modest revenue growth for the Indian IT services industry

Delhi, New: In spite of ongoing global macroeconomic challenges, the Indian IT services industry is predicted to witness a second consecutive year of modest revenue growth in FY25, at 5-7 percent, according to a research released on Wednesday.

According to a Crisil Ratings assessment, this comes after a 12% compound annual increase over the next ten years through the fiscal year 2024 and a 6% (year-over-year) growth predicted for that fiscal year.

IT service providers held off on hiring new employees as revenue growth remained muted, which resulted to workforce reductions of 4% (year over year) in December 2023.

This limited the employment of more expensive replacements during fiscal 2024, coupled with the attrition rate’s drop to 13% as of December 2023 from a peak of 20% in fiscal 2023.

“This fiscal year, the downturn in technology spending will persist, which will negatively impact the growth of IT service providers’ revenue. Manufacturing and healthcare will rise at a robust 9–10%, while revenue from BFSI and retail categories will continue to be a drag at a muted 4-5%, according to Aditya Jhaver, Director, CRISIL Ratings.

The top 24 companies, or 55% of the Rs 14 lakh crore in sectoral income in the previous fiscal year, were examined in the research.

“Most end-user industries are likely to postpone large discretionary spends, while IT spends will remain focused on automation and cost optimization,” Jhaver said.

65 percent of the Indian IT services industry’s income comes from four sectors: retail (15 percent), technology (10 percent), communications and media (10 percent), and banking, financial services, and insurance (BFSI, revenue share of 30 percent).

“The operating margin is expected to remain stable at 22–23% as a result of careful management of employee costs, which account for 85% of total expenses and include subcontracting costs. Additionally, cautious hiring practices and lower attrition will lower replacement costs,” the research said.