New Delhi, April 24: The IT services sector in India is likely to see a second successive year of muted revenue growth, at 5-7 percent in FY25, amid continuing global macro-economic head winds, a report showed on Wednesday.
This follows a 12 percent compound annual growth over the decade through fiscal 2024 and 6 percent (year on year) growth expected for fiscal 2024, according to a Crisil Ratings report.
As revenue growth remained subdued, IT service companies pulled back on addition of fresh talent, resulting in headcount reductions by 4 percent (on year) in December 2023.
This, along with the decline in attrition to 13 percent as of December 2023 from the high of 20 percent in fiscal 2023, provided a breather by limiting higher cost replacement hiring during fiscal 2024.
“The slowdown in technology spend will continue this fiscal year, weighing on the revenue growth of IT service providers. Revenue from BFSI and retail segments will continue to be a drag with subdued growth of 4-5 percent while manufacturing and health care will grow at a healthy 9-10 percent,” said Aditya Jhaver, Director, CRISIL Ratings.
The report looked at top 24 firms, accounting for 55 percent of the Rs 14 lakh crore sectoral revenue last fiscal.
“IT spends will remain focused on automation and optimising costs, while most end user industries are likely to defer large discretionary spends,” Jhaver added.
Four sectors account for 65 percent of the revenue of the Indian IT services sector: Banking, financial services, and insurance (BFSI, revenue share of 30 percent), retail (15 percent), technology (10 per cent) and communications and media (10 percent).
“Operating margin, however, should sustain at 22-23 percent due to prudent management of employee costs (constitutes 85 percent of total expenses and includes sub-contracting costs), through cautious hiring and with lower attrition reducing replacement cost,” the report showed.
