India's information technology (IT) services sector is headed for a prolonged revenue slowdown, with growth expected to remain muted through FY27 and FY28, as artificial intelligence (AI)-driven disruptions, weak discretionary spending, and persistent geopolitical uncertainties compound a four-year deceleration, according to a Crisil Ratings report released on Thursday, 16 July.

What the Report Found

The Crisil Ratings analysis flags a structural shift underway in how clients engage with IT vendors. Rising adoption of AI-native solutions is intensifying pricing pressure, triggering deal renegotiations, and slowing execution timelines as enterprises reassess technology budgets. Demand weakness in the United States and Europe — the two largest export markets for Indian IT — continues to suppress revenue visibility.

'AI is no longer just a productivity lever for IT services companies; it is beginning to challenge their traditional revenue model,' said Anuj Sethi, Senior Director at Crisil Ratings. '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,' he added.

Mid-Tier Companies and the Currency Tailwind

Mid-tier IT firms could prove more agile in navigating this environment, the report noted, given their ability to pivot faster to newer service lines and AI-adjacent offerings. For the broader industry, the critical test will be how quickly companies reinvent business models and expand into emerging service categories.

A 5–7 per cent depreciation in the rupee is expected to support revenue growth and operating profitability in FY27, but that tailwind is likely to fade by FY28 as forex support moderates. Overall revenue growth for mid-tier players is projected to hold at high single-digit levels over both fiscals, though the subdued broader outlook is expected to temper momentum.

Hiring Outlook and Margin Pressures

The hiring landscape is also being reshaped by AI-led disruptions. Net headcount addition across the sector is expected to remain muted in FY27 and FY28, as companies prioritise margin defence and productivity improvement over workforce expansion. Automation, higher employee utilisation, and selective hiring for AI-specific skills are identified as the key levers.

'Prudent resource management and currency tailwinds should help the sector sustain healthy operating margins of 22–23 per cent 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 at Crisil Ratings.

Credit Profiles and Broader Risks

Despite the growth headwinds, credit profiles across the sector are expected to remain stable, underpinned by robust balance sheets, low debt levels, and healthy liquidity. This is notably the fourth consecutive year in which the sector's growth trajectory has disappointed relative to pre-pandemic benchmarks.

The sector remains exposed to heightened uncertainty from AI disruptions even as geopolitical and macroeconomic headwinds continue to constrain demand in key export markets. How quickly Indian IT firms can transition from volume-led to value-led models will determine whether the slowdown extends into a fifth year.