Indian IT services growth muted at 1-3% amid AI disruptions: Crisil

Indian IT services companies' revenue growth is set to slow to 1-3% this fiscal due to AI disruptions, weak discretionary spending, and geopolitical issues, as per a Crisil Ratings report. The slowdown is expected to continue into the next fiscal.

Revenue growth of Indian IT services companies is expected to remain muted at 1-3 per cent this fiscal, as artificial intelligence (AI)-driven disruptions, weak discretionary spending and continuing geopolitical uncertainties weigh on demand, according to a Crisil Ratings sector analysis.

The report said the industry's slowdown is likely to persist into the next fiscal as clients reassess technology spending and AI reshapes traditional business models. "AI is no longer just a productivity lever for IT services companies; it is beginning to challenge their traditional revenue model. Rising adoption of AI-native solutions is intensifying pricing pressure, triggering deal renegotiations and slowing execution as clients reassess technology spending. At the same time, weak discretionary spending and uncertainty in the US and Europe continue to weigh on demand. This will keep revenue visibility modest over the near term," said Anuj Sethi, Senior Director, Crisil Ratings.

Modest Recovery and Shifting Landscape

According to the report, the industry is expected to see only a modest recovery thereafter, with revenue growth estimated at 2-4 per cent in the following fiscal, even as companies adapt to a rapidly changing technology landscape.

Mid-Tier Firms and Hiring Trends

While demand remains under pressure, Crisil said mid-tier IT companies could continue to outperform larger peers, supported by their niche capabilities and acquisitions. However, it added that the broader industry outlook is likely to limit their momentum as well, with growth expected to remain at high single-digit levels over the next two fiscals.

The report also said the weak growth outlook and AI-led disruptions are reshaping hiring trends across the sector. Net headcount additions are expected to remain muted over the next two fiscals as companies prioritise automation, improve employee utilisation and selectively hire professionals with AI-related skills.

Operating Margins and Financial Stability

Despite slower revenue growth, Crisil expects operating margins to remain healthy at 22-23 per cent this fiscal, aided by prudent resource management and the benefit of a weaker rupee. "Prudent resource management and currency tailwinds should help the sector sustain healthy operating margins of 22-23% this fiscal. But that cushion could narrow from next fiscal as revenue pressures persist, talent costs rise, AI investments continue and forex support moderates, " said Aditya Jhaver, Director, Crisil Ratings.

The report said strong balance sheets, healthy cash generation and low dependence on debt will continue to support investments in AI, cloud, cybersecurity and digital engineering, keeping credit profiles stable despite ongoing business challenges.

However, it cautioned that over the next two fiscals, companies' business risk profiles will increasingly depend on their ability to scale AI-led engagements, protect margins and compete with global capability centres while managing demand for AI-skilled talent. (ANI)

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