Uncertain macroeconomics in key markets will further drag revenues down
Staff Report
New Delhi: The IT services sector in India could see a second-successive year of muted revenue growth, at 5-7 per cent in FY25, amid continuing global macroeconomic headwinds, a report showed.
This follows a 12 per cent compound annual growth over the decade through fiscal 2024 and 6 per cent (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 per cent (on-year) in December 2023.
“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 per cent while manufacturing and healthcare will grow at a healthy 9-10 per cent,” Aditya Jhaver, Director, Crisil Ratings, said.
In March 2024, Deepak Jotwani, Assistant Vice-President & Sector Head at credit rating agency ICRA, said that revenue growth in FY25 to remain tepid at around 3-5 per cent for the second consecutive year, given the persistent macroeconomic headwinds in key markets of the US and Europe, resulting in lower discretionary IT spends by corporates.
This, along with the decline in attrition to 13 per cent as of December 2023 from the high of 20 per cent in fiscal 2023, provided a breather by limiting higher-cost replacement hiring during fiscal 2024.
The report looked at top 24 firms, accounting for 55 per cent of the Rs14 trillion 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 said.
Four sectors account for 65 per cent of the revenue of the Indian IT services sector: Banking, financial services, and insurance (BFSI, revenue share of 30 per cent), retil (15 per cent), technology (10 per cent) and communications and media (10 per cent).
“Operating margin, however, should sustain at 22-23 per cent due to prudent management of employee costs (constitutes 85 per cent of total expenses and includes sub-contracting costs), through cautious hiring and with lower attrition reducing replacement cost,” the report showed.
