As per a credible report released by ICRA, India’s IT services industry is expected to witness moderate revenue growth of 4-6 percent in FY26. The rating agency’s expectation is based with respect to a sample set of companies that are accounting approximately 60 percent of the industry’s overall revenue stream.
Furthermore, growth is expected to remain subdued in the near term due to global economic headwinds and policy uncertainties in key markets which include the US and Europe. ICRA has also reported that the sector has seen gradual recovery over the past three quarters
Global Trades Influence on IT Sector Growth
According to Deepak Jotwani, Vice-president & Sector Head at ICRA, the uncertain global trade environment and macroeconomic pressures are dampening growth prospects. This is particularly potential US trade tariffs. Jotwani further added, “Policy changes by the US government for key sectors catered to by Indian IT services companies as well as future interest rate trajectory will remain the key monitorables”
BFSI, Retail & Healthcare Witnesses an Upsurge
With companies reporting a year-on-year revenue growth of 3.6 per cent in USD terms in the first nine months of FY25, the report did note that the industry is slowly recovering. Furthermore, the BFSI sector, coupled with the retail and healthcare sectors has showcased an upward trajectory in discretionary IT spending. This has greatly contributed to new order inflows which is further followed by the investments in Generative AI technologies which are beginning to evolve into fresh business opportunities for Indian IT firms.
To speak of Indian IT firms, the players in this space have made noteworthy investments in GenAI while also training a large portion of personnel in AI-driven capabilities. With this, it has opened the path to a rise in AI-related deals. This can be particularly witnessed in BFSI and healthcare who have been early adopters of AI-driven solutions. Moreover, Jotwani has also cited that the overall contract wins remain strong, ensuring revenue visibility for the medium term while deal cycles have lengthened.
Shedding Light on Attrition Rates
The IT sector has also seen the much needed, sharp decline in employee attrition rates, which had become a dire concern, previously. According to the report, the attrition level has been reduced from 22.3 per cent in Q3FY23 to 12.8 percent in Q3FY25. Furthermore, ICRA is also expecting attrition rate to stabilize and come to about 2-13 per cent in the near future.
Until growth momentum picks up towards the end of FY26, hiring activity is expected to remain subdued, as per the report. Today, IT firms are also prioritising cost efficiency and productivity by leveraging advanced AI-driven solutions which has been beneficial in reducing the need for large-scale recruitment.
A Steady Operating Margins
Operating profit margins (OPM) are expected to remain stable at 22.5-23.0 percent, despite revenue pressures, over the next three to four quarters. This is largely due to optimisation efforts which encompasses moderation in wage hikes, cost control measures, and higher employee utilisation. Also to note, employee costs have dropped slightly from Q3FY25 from 57.0 per cent a year earlier to 56.2 percent.
