Information technology (IT) services sector revenue growth in India is expected to remain subdued in the current fiscal year (FY27) and the following year (FY28). Factors such as artificial intelligence (AI)-driven disruptions, weak discretionary spending, and ongoing geopolitical uncertainties are contributing to a four-year slowdown, as per a report. Mid-tier IT companies may demonstrate agility in this challenging environment, while the broader industry’s resilience will be tested by how swiftly they adapt to evolving business models and embrace new services, according to a Crisil Ratings report.
A 5-7% depreciation in the rupee is anticipated to bolster revenue growth and operational profitability in the current fiscal year. However, this currency advantage is likely to diminish next year. The report also highlights that credit profiles are expected to remain stable, supported by strong balance sheets, minimal debt, and robust liquidity.
Anuj Sethi, Senior Director at Crisil Ratings, emphasized that AI is no longer just a tool for enhancing productivity for IT services firms; it is now challenging their traditional revenue streams. The increasing adoption of AI-native solutions is heightening pricing pressures, leading to renegotiations of deals and slower project executions as clients reassess their technology investments. Additionally, persistent weak discretionary spending and uncertainties in the US and Europe are dampening demand, thereby keeping revenue visibility limited in the short term.
Despite the rise of mid-tier companies, the overall industry outlook remains subdued, with growth expected to hover around high single-digit levels in the current fiscal year and the next. The report also forecasts that net headcount additions in the sector will be modest as companies prioritize margin protection and productivity enhancements over extensive hiring. Automation, improved employee utilization, and targeted recruitment for AI-related skills are identified as key strategies to navigate the evolving landscape.
Aditya Jhaver, Director at Crisil Ratings, noted that prudent resource management and favorable currency movements are likely to help the sector maintain healthy operating margins of 22-23% in the current fiscal year. However, this cushion may shrink in the next fiscal year due to persistent revenue challenges, escalating talent costs, ongoing AI investments, and moderating forex support. The sector remains vulnerable to uncertainties arising from AI disruptions, alongside geopolitical and macroeconomic challenges that are constraining demand in crucial export markets.
