HSBC Research Projects Indian IT Services Sector to Grow by 6-7% in FY26
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New Delhi, Dec 9 (NationPress) The Indian IT services sector is projected to grow by 6-7% in FY26, a significant rise from the 3-4% growth experienced in the last two years, driven by a rebound in the US market, as per HSBC Research's Monday report.
The pace of tech adoption for generative AI (GenAI) has accelerated in 2024 compared to business GenAI.
"We anticipate that business GenAI projects will gain momentum next year. Moreover, global capability centres (GCCs) are continuing to expand and capture market share from Indian IT, although these gains are beginning to stabilize," HSBC Research elaborated in its 'Outlook for 2025' report.
Most operational metrics, including utilization and offshore mix, are currently at peak levels, suggesting that as growth improves, margin pressure is likely to intensify next year.
"The essential strategy here is to adjust the corporate structure by hiring younger engineers to mitigate costs. However, this adjustment is a lengthy process and is not expected to yield immediate margin improvements," the report indicated.
"In summary, we forecast that the IT sector will at least match market performance in 2025. The anticipated growth should draw investor interest away from other sectors experiencing a downturn in demand, despite their high valuations," the report stated.
Within the IT industry, stock selection hinges on achieving a balance between growth and valuations.
"We remain less optimistic regarding mid-tier companies, as their growth rates are diminishing while their valuations stay elevated," the report noted, while upgrading Infosys and LTI Mindtree to 'Buy' and Wipro to 'Hold'.
"Our top recommendations include Infosys (Buy), LTI Mindtree (Buy), HCLT (Hold), and MphasiS (Buy)," it further added.
HSBC Research anticipates a weaker outlook for Europe, uncertainty surrounding GenAI, and challenges posed by global capability centres to limit growth potential.
"The demand outlook for the US appears favorable, bolstered by an improving macroeconomic environment, particularly in banking and retail, and supported by a low baseline," the report highlighted.
In contrast, demand in Europe is declining, which offsets some of the advantages gained from the US market.
"From a broader viewpoint, unlike the previous three major upcycles since 2009, we do not foresee any strong new business or technological drivers emerging," the report concluded.
