The Indian IT services sector is expected to experience another year of modest revenue
growth, with ICRA predicting a 4-6% increase in FY2025. Despite the ongoing challenges
and subdued topline growth, the industry is anticipated to maintain a healthy operating profit
margin (OPM) of around 22%, supported by declining attrition and improved operational
efficiency.
ICRA has maintained a “stable outlook” for the sector, citing strong business fundamentals,
expected solid earnings, and robust cash flow. The slower revenue growth is attributed to
reduced discretionary spending by clients due to persistent macroeconomic uncertainties in
key markets such as the US and Europe. Inflation and rising interest rates have led clients to
prioritize cost optimization and delay major projects.
Although revenue growth has slowed, order books and deal pipelines remain strong. ICRA
suggests that as macroeconomic conditions improve, growth momentum may pick up,
particularly with the increasing role of technology in capital allocation.
In FY2024, the leading Indian IT companies recorded a modest 5.5% revenue growth in USD
terms, down from 9.2% in FY2023. The industry remains heavily reliant on the US market,
followed by Europe, making it vulnerable to economic fluctuations and regulatory changes.
While US revenue growth has slowed, Europe has shown more resilience.
The adoption of generative AI (Gen-AI) is a key trend to watch, with many companies
ramping up their AI capabilities despite limited revenue from Gen-AI deals so far. Hiring has
also slowed, with a decline in net additions over the past seven quarters. However, attrition
rates have significantly decreased, stabilizing around 12-13% for FY2025.
ICRA expects the financial health of most industry players to remain strong, supported by
healthy cash flow, low debt, and solid liquidity.
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