Crisil Analysis: IT sector revenue growth to remain modest in 2026-27, too

AI, GenAI to drive growth in the medium term; GCCs, global uncertainties pose key risks

The information technology (IT) services sector is expected to continue registering modest mid-single-digit growth next financial year, supported by a gradual recovery expected in core IT spending even as demand conditions remain cautious. 

At the same time, rising adoption of artificial intelligence (AI) and generative AI (GenAI) is emerging as a medium-term growth driver, supporting incremental deal wins and transformation-led spending. 

Revenue is expected to grow 6-8  per cent in 2025-26, of which 4-6 per cent will be driven by the depreciation of the rupee against major foreign currencies.

  Core growth is seen muted in low-single digits, reflecting weak demand in key markets such as the US and Europe, which together account for nearly 85 per cent of the sector’s revenue.

  Geopolitical uncertainties and trade disruptions are likely to impact discretionary spending, constraining growth in constant currency terms. 

Our analysis of India’s top 24 firms, accounting for 55 per cent of the estimated industry revenue of  ₹15 trillion this financial year, indicates that nearly 30 per cent of the revenue will come from banking, financial services and insurance (BFSI). Retail is expected to contribute 15 per cent, and technology, communications and media, manufacturing, and health care 10 per cent each. 

BFSI has witnessed modest, though gradually improving, growth over the past few quarters. High regulatory projects and pickup in client spending drove the improvement, with the Federal Reserve’s reduction in policy rates during the year also supporting. 

However, in constant currency terms, the growth in BFSI revenue is expected to be limited to 3-4 per cent because relatively high interest rates this financial year has restrained discretionary spending. The sharpening focus on AI and allied technologies, as reflected in the recent deal wins, will support near to medium-term growth prospects for the segment. The manufacturing segment, comprising mixed set of end-user industries such as automotive and aerospace, has also witnessed overall improvement in the recent quarters. Growing demand in aerospace and certain other sub-segments, however, has been partially offset by continued weakness in automotive segment.  

Growth in this segment is likely to remain in the low- to mid-single digits in the current financial year and next as macroeconomic uncertainties continue to weigh on discretionary spending. 

Despite trade and macroeconomic uncertainties, IT companies have continued to secure deals, indicatingrelatively favourable medium-term prospects. Deal activity is increasingly centred around AI and GenAI across segments as AI adoption has become a core priority for enterprises. 

However, tepid macro environment and productivity gains from AI adoption have kept staffing requirements in check. As a result, the sector is expected to see only muted net additions in the current fiscal. Over the last few quarters, net additions were negative to modest. 

An improving mix of higher-value digital and AI-led deal execution is expected to support the operating margin of IT companies at 21-22 per cent in the current financial year.  

Margins are likely to remain range bound next financial year too. Increased localisation of delivery, through nearshoring and offshoring, is also likely to mitigate the modest impact of H1B visa regulations with limited pressure anticipated over the near to medium term. 

While revenue growth remains muted, healthy operating margin and sustained cash generation have strengthened balance sheets, supporting stable credit quality across IT service providers. Healthy cash surpluses are also expected to enable selective acquisitions, particularly small and mid- sized tuck-in deals, which could enhance service offerings, digital capabilities and niche expertise. 

The sector, however, remains vulnerable to the rapid increase in global capability centres being set up in India. Also, delays in economic recovery in key markets can challenge growth estimates.