The Indian IT services industry is projected to achieve a moderate revenue growth of 4–6% in the fiscal year 2025–26, according to a recent report by credit rating agency ICRA. This forecast, based on a sample of 15 leading IT companies representing approximately 60% of the industry’s revenue, indicates a slight improvement from the 3.6% growth recorded in the first nine months of FY25.
ICRA attributes the subdued earnings momentum to uncertainties stemming from global economic factors, particularly the imposition of US trade tariffs. These developments are expected to weigh on IT budget allocations in key markets, including the US and Europe, which collectively account for 80–90% of the Indian IT services industry’s revenue. The agency cautions that despite some recovery in operating income in recent quarters, the industry is unlikely to witness any material uptick in earnings momentum in FY26 due to these uncertainties. Despite the challenges posed by global economic headwinds, certain sectors within the Indian IT industry are showing signs of resilience. The banking, financial services, and insurance (BFSI), retail, and healthcare sectors have seen an uptick in discretionary IT spending, contributing to new order inflows.
Additionally, investments in generative artificial intelligence (GenAI) technologies are beginning to translate into fresh business opportunities for Indian IT firms. Leading companies have trained a significant portion of their workforce in GenAI skills and are ramping up their capabilities to deliver AI-based solutions to clients. Hiring activity in the Indian IT sector is expected to remain subdued until growth momentum picks up towards the end of FY26. This trend is also linked to increased industry investment in GenAI, which is expected to enhance productivity and reduce costs. Attrition rates, which had been a concern in previous years, have shown improvement, with levels dropping to 12.8% in Q3 FY25 from 22.3% in Q3 FY23. ICRA anticipates that attrition levels will stabilize around the long-term average of 12–13% in the near term. ICRA projects that operating profit margins (OPM) for the sample set of companies will sustain at 22.5–23% over the next three to four quarters.
This stability is attributed to factors such as easing attrition rates, moderation in wage cost inflation, higher employee utilization, and cost structure optimization. Employee costs as a percentage of operating income declined marginally to 56.2% in Q3 FY25 from 57.0% in Q3 FY24, further supporting margin stability. While the Indian IT services industry faces challenges from global economic uncertainties and policy changes in key markets, the sector’s focus on technological advancements, particularly in GenAI, and efforts to enhance operational efficiency are expected to contribute to moderate revenue growth in FY26. The industry’s ability to adapt to these dynamics will be crucial in maintaining its competitive edge and sustaining growth in the evolving global landscape.
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