CRISIL analysis: IT services sector eyes 7-9% growth on BFSI, AI funding

India’s information technology (IT) services sector is likely to see steady revenue growth of 7-9 per cent in the next financial year (FY26), led by a gradual pick-up in relevant spends—mainly by the banking, financial services, and insurance (BFSI) and gen-AI sectors — in the US and parts of Europe. 

In FY25, revenue growth is expected at 5-7 per cent, marking a second consecutive year of muted performance after 6 per cent growth FY24. 

A CRISIL Ratings study of the top 25 firms, accounting for 55 per cent of the Rs 14 trillion IT sector’s revenue in fiscal 2024, shows BFSI accounts for 30 per cent of the revenue share, retail for 15 per cent, and technology, communications, media, manufacturing, and healthcare for 10 per cent each. 

Following a slowdown in FY24, BFSI revenue revived by 3 per cent year-on-year in the second quarter of this fiscal, amid an easing macroeconomic scenario. However, improvement is expected to remain gradual due to elevated interest rates and a slower-than-expected pace of rate cuts in the US in 2025, which accounts for 60 per cent of the sector’s revenue. 

IT spending in manufacturing and technology is projected to grow in the mid-to-high single digits as companies continue to focus on automation through artificial intelligence (AI) and cost optimisation. 

 

With better prospects, IT firms have ramped up hiring, recording positive net employee additions in the second quarter of this fiscal after seven consecutive quarters of decline. Attrition is expected to remain under control at 12-13 per cent. Healthy employee utilisation at 85 per cent will help IT firms maintain operating margins at 21-22 per cent. 

Strong cash generation, robust balance sheets, and sizeable cash surpluses will ensure stable credit quality for IT service providers. Companies will continue targeting acquisitions, particularly small and mid-sized opportunities, to expand product offerings and digital capabilities. 

Despite subdued revenue growth, IT firms have continued to secure deals, bolstering their medium-term prospects. A focus on increasing generative AI (gen-AI)-based services bodes well for future growth. 

However, the sector remains exposed to risks such as the rising number of global capability centers being set up in India and potential delays in economic recovery in key markets.