Indian IT services to see modest growth in FY2025

The Indian IT services industry is expected to grow by 4-6% in FY2025, despite macroeconomic challenges, with operating profit margins remaining healthy at 22%, according to ICRA. A strong order book and deal pipeline could drive growth once uncertainties in key markets ease. Generative AI adoption is seen as a key area of focus, but hiring remains subdued due to moderate demand.

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The Indian IT services industry is projected to see mild revenue growth for the second consecutive year in FY2025, with an estimated increase of 4-6%, according to a report by ICRA. Despite ongoing challenges, operating profit margins (OPM) are expected to remain healthy at around 22%, thanks to declining attrition levels. ICRA maintains a stable outlook for the sector due to strong earnings, cash flow generation, and robust balance sheets.

Deepak Jotwani, Vice President & Sector Head – Corporate Ratings at ICRA, noted that muted revenue growth is expected due to reduced discretionary spending by clients amid macroeconomic uncertainties in key markets like the US and Europe. “ICRA expects FY2025 to be the second consecutive year of muted revenue growth, estimated at 4-6%, given the lower discretionary technological spends by clients,” he said. However, despite slowed revenue conversion, a strong order book and deal pipeline could boost growth once macroeconomic challenges ease.

In FY2024, ICRA’s sample companies posted a modest YoY growth of 5.5% in US$ terms, down from 9.2% in FY2023. Jotwani added, “Despite tepid revenue growth, ICRA expects the OPM for its sample set companies to remain healthy at ~22% in FY2025, supported by easing out of wage cost inflation and optimisation of operational efficiencies”.

Geographically, the US accounts for 55-60% of revenues, followed by Europe and other regions, leaving the industry vulnerable to economic uncertainties and regulatory shifts in these markets. Generative AI adoption is expected to be a significant factor for future growth, with companies already enhancing their AI capabilities. Though hiring slowed in recent quarters due to reduced demand and increased employee capacity, attrition rates have declined, stabilizing at around 12-13% in FY2025.