CRISIL analysis: IT services sector eyes 7-9% growth on BFSI, AI funding
- IBEF
- December 31, 2024
As per CRISIL analysis India’s information technology (IT) services sector is projected to experience steady revenue growth of 7-9% in the next financial year (FY26), driven by increased spending in the banking, financial services, and insurance (BFSI) sectors, as well as generative AI initiatives in the US and parts of Europe. In FY25, growth is expected to be more modest at 5-7%, marking a second consecutive year of subdued performance following a 6% increase in FY24. A recent CRISIL Ratings study highlights that BFSI contributes 30% of the revenue share, while retail, technology, communications, media, manufacturing, and healthcare each account for 10%. Despite a slowdown in FY24, BFSI revenue showed a 3% year-on-year revival in the second quarter of the current fiscal year.
As IT firms adapt to a gradually improving macroeconomic environment, they are ramping up hiring after seven quarters of decline, with attrition expected to stabilize at 12-13%. Employee utilization rates are healthy at 85%, supporting operating margins projected between 21-22%. The sector benefits from strong cash generation and robust balance sheets, ensuring stable credit quality for service providers. Companies are actively pursuing acquisitions, especially among small and mid-sized firms, to enhance their product offerings and digital capabilities. While subdued revenue growth persists, IT firms continue to secure deals, particularly in generative AI services, which promise future growth. However, challenges remain, including increased competition from global capability centres in India and potential delays in economic recovery in key markets.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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