icra-predicts-4-6-growth-for-it-industry-in-fy25

The Indian IT services industry is projected to experience another year of muted revenue growth, with an estimated increase of 4-6 per cent in FY2025, according to a recent report by ICRA. 

 

Despite these challenges, the sector's operating profit margin (OPM) is expected to remain strong at around 22 per cent.

 

ICRA has maintained a "stable outlook" for the industry, attributing this stability to a solid business foundation, anticipated healthy earnings, and strong cash flow generation. 

 

The forecast reflects ongoing macroeconomic uncertainties in major markets such as the US and Europe, which have led to reduced discretionary spending by clients.

 

Deepak Jotwani, Vice President and Sector Head – Corporate Ratings at ICRA, highlighted that the industry's revenue growth has been sluggish over the past five to six quarters. 

 

This trend is expected to continue, influenced by persistent economic pressures and a shift towards cost optimisation and essential business projects.

 

Revenue growth for the leading 15 large and medium-sized listed Indian IT services companies stood at approximately 5.5 per cent in FY2024, down from 9.2 per cent in FY2023. 

 

Despite this, ICRA anticipates that operational efficiencies and eased wage cost inflation will sustain a healthy OPM.

 

The sector remains heavily reliant on revenues from the US, which contribute 55-60 per cent of Q1 FY2025 earnings, followed by Europe at 22-25 per cent.

 

 Recent macroeconomic headwinds have moderated US revenue growth, although European markets have shown greater resilience.

 

Generative AI (Gen-AI) is expected to play a significant role in the industry's future, with leading companies expanding their capabilities and offerings in this area. 

 

While Gen-AI's contribution to revenue is currently limited, it is anticipated to grow as technology adoption becomes more widespread.

 

Hiring within the sector has been restrained, with negative net additions over the past seven quarters due to excess manpower from previous hiring surges. 

 

However, attrition levels have improved, declining to 13.1 per cent in Q1 FY2025 from 23.2 per cent in Q2 FY2023. ICRA forecasts that attrition will stabilise around 12-13 per cent in FY2025.