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Indian IT Services Industry Faces Tepid Revenue Growth, ICRA Forecasts 3-5% for FY2025

Indian IT Services Industry Outlook by ICRA


Indian IT Services Industry Faces Tepid Revenue Growth, ICRA Forecasts 3-5% for FY2025

The Indian IT services industry is expected to witness modest revenue growth of 3-5% in FY2025, according to a report by ICRA. This forecast represents a mild improvement from the 2% growth recorded in 9M FY2024 but indicates continued challenges due to macro-economic headwinds in key markets such as the US and Europe. Despite the subdued revenue growth outlook, ICRA maintains a stable outlook for the industry, citing well-established business positions, healthy earnings and cash flow generation, and strong balance sheets of industry players.

Mr. Deepak Jotwani, Assistant Vice President & Sector Head at ICRA, commented on the industry’s performance, stating, “ICRA expects revenue growth in FY2025 to remain tepid at around 3-5% for the second consecutive year. The persistent macro-economic headwinds in key markets have resulted in lower discretionary IT spends by corporates, impacting all key sectors serviced by the industry. However, critical spending and cost optimization deals continue to gain traction, supporting the growth prospects for Indian IT services companies to some extent.”

In 9M FY2024, ICRA’s sample set companies recorded a modest year-over-year growth of approximately 2.0% in revenues in USD terms, compared to 9.2% growth in FY2023. The growth in the US market witnessed a sharp moderation compared to Europe. Despite the slowdown in revenue conversion of orders, the order book and deal pipeline of most companies remain strong. The evolving consumer demand dynamics post-pandemic have made technology spend more integral to overall capital allocation of corporates, indicating a likely pickup in growth momentum once the macroeconomic headwinds subside.

Hiring activity in the industry has remained muted over the past five quarters, with negative net addition for sample set companies due to moderation in demand and increased utilization of excess capacity added in FY2023. ICRA expects hiring to remain subdued in the near term, gradually picking up as the growth momentum improves. Attrition levels are also expected to stabilize over the near term, approaching the long-term average of 12-13%, as the overall slowdown in growth momentum and strong hiring in the previous fiscal have corrected the earlier demand-supply mismatch.

The Indian IT services industry continues to maintain a net cash surplus position with strong liquidity, supported by high levels of operating cash flows and modest capex and working capital requirements. Despite substantial dividend payouts, share buybacks, and inorganic investments, ICRA expects the financial profile of the majority of industry players to remain strong, supported by strong cash flow generation, lower debt levels, and strong liquidity.

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