IT Services To See Modest 4-6% Growth In FY2025, OPM To Be 22%

The Indian IT services industry is projected to experience a dull revenue growth of 4-6 per cent in FY2025. This will be the second consecutive year of subdued performance. 

As per ratings agency Icra, the forecast is due to ongoing challenges driven by reduced discretionary technological spending amidst persistent macroeconomic uncertainties in key markets, particularly the US and Europe. 

Despite these obstacles, the industry’s operating profit margin (OPM) is expected to remain decent at approximately 22 per cent in FY2025, supported by easing wage cost inflation and improved operational efficiencies.

In the previous fiscal year, revenue growth for IT services companies was modest, recording a 5.5 per cent year-over-year increase in USD terms for FY2024, compared to a higher 9.2 per cent in FY2023. The sector’s dependence on the US market, which contributes 55-60 per cent of revenues, continues to be a significant factor, with recent slowdowns in growth due to intensified macroeconomic pressures. Europe, however, has shown more resilience in its growth compared to the US.

Icra’s report mentioned that while the order book and deal pipeline for most IT services companies remain strong, the revenue conversion has slowed. This slowdown, coupled with an increased focus on cost optimization and business-critical projects, has led to muted hiring in the sector. 

Attrition rates have notably decreased, dropping to 13.1 per cent in Q1 FY2025 from 23.2 per cent in Q2 FY2023. Despite a recent trend of negative net additions, hiring is expected to stay subdued until there is a significant uptick in growth momentum.

In a statement, Deepak Jotwani, Vice President & Sector Head – Corporate Ratings at ICRA, said, “Icra expects FY2025 to be the second consecutive year of muted revenue growth... given the lower discretionary technological spends by clients amidst persistent macro-economic uncertainty.” 

This cautious outlook reflects broader industry trends, including a slower-than-expected increase in revenue from generative AI (Gen-AI) solutions. However, leading IT firms are investing heavily in Gen-AI capabilities, anticipating that technology adoption will drive future growth.