Indian IT services companies are likely to witness a moderate growth of 4-6 per cent in revenues in 2025-26, according to rating firm ICRA.
It said attrition levels would stabilise around the long-term average of 12-13 per cent over the near term. Hiring is likely to remain low until the growth momentum picks up by the end of 2025-26.
While near-term revenue pressures exist and deal cycles have elongated further, overall deal wins for the industry in recent quarters have remained resilient. Industry participants continue to sit on a healthy total contract value, which provides revenue visibility over the near to medium term.
The firm made these projections based on its assumptions based on a sample set that comprises 15 large and medium-sized listed Indian IT services companies.
The operating profit margins (OPM) for the sample set is expected to be around 22.5-23 over the next three to four quarters.
“The growth momentum for ICRA’s sample set of IT services companies is likely to remain muted over the near term, owing to the looming uncertainty related to the imposition of the US trade tariffs and macroeconomic headwinds across the key markets of the US and Europe,” Deepak Jotwani, Vice-President & Sector Head of ICRA, said.
Policy changes by the US government for key sectors catered to by Indian IT services companies as well as future interest rate trajectory, would remain the key monitorables, he said.
The companies under review recorded a year-on-review revenue growth of 3.6 per cent in the US dollar terms in the first nine months of 2024-25, witnessing gradual recovery over the past three quarters.
“This was backed by a relatively lower base of 2023-24 and a slight uptick in discretionary spending by customers in the banking, financial services & insurance (BFSI), and retail sectors in some markets. Investments in Generative AI (GenAI) initiatives translating into new order inflows too helped,” he said.
Respite
The attrition in the last 12 months corrected sharply to 12.8 per cent in the third quarter of 2024-25 from 22.3 per cent in the same quarter previous year.
ICRA expects attrition levels to stabilise at a long-term average of 12-13 per cent over the near term. “Moreover, employee cost as a percentage of operating income declined marginally to 56.2 per cent in the third quarter as against 57 in the same quarter of the previous year, owing to moderation in wage hikes in the current fiscal.
ICRA expects hiring to remain low in the near term until the growth momentum picks up by the end of 2025-26. Lower hiring activity can also be correlated with higher investments by the industry in GenAI and the expected benefits in terms of increased productivity and cost savings. Leading Indian IT services companies have trained a sizable portion of their employee base in GenAI skills and have already started ramping up their capabilities and service offerings, to deliver GenAI-based solutions to their clients.
“This has started to show results as the inflow of GenAI-related deals for major industry players have risen in recent quarters and is expected to pick up materially over the medium term, as overall technology adoption is more pervasive,” Jotwani added.
