Indian IT Services Firms Anticipate 4-6% Revenue Growth in FY 2026

New Delhi, March 12 (NationPress) Indian IT services firms are projected to achieve a modest 4-6% growth in US dollar terms during FY2026, as indicated by a report from ICRA published on Wednesday.

Additionally, ICRA forecasts that attrition rates will stabilize around the long-term average of 12-13%. Hiring is anticipated to remain subdued until growth momentum resumes towards the end of FY2026, according to the report.

The top 15 large and medium-sized listed Indian IT services companies have demonstrated resilience in overall deal wins in recent quarters. Industry players maintain a robust total contract value, ensuring revenue visibility in the near to medium term, the report notes.

Operating profit margins for this sample group, which represents 60% of the IT sector's revenue, are expected to hold steady at 22.5-23% over the next three to four quarters.

Commenting on the short-term outlook for industry performance, ICRA Vice President Deepak Jotwani remarked: "The growth momentum for ICRA’s sample set of IT services firms is likely to remain subdued in the near term due to the prevailing uncertainty surrounding US trade tariffs and macroeconomic challenges across key markets in the US and Europe. ICRA anticipates a 4-6% revenue increase in USD terms for FY2026, following a projected 4-5% rise for FY2025. Changes in US government policies affecting critical sectors served by Indian IT firms and future interest rate trends will be crucial to monitor."

The sample set posted a year-on-year revenue growth of 3.6% in USD terms in the first nine months of FY2025, reflecting a gradual recovery over the last three quarters, aided by a relatively low base from FY2024, a slight increase in discretionary spending by clients in banking, financial services & insurance (BFSI), and retail sectors, as well as investments in Generative AI (GenAI) initiatives leading to new order inflows.

ICRA pointed out that there has been some relief for industry participants with the reduction in attrition rates and wage cost inflation, both of which were concerns during FY2023 and the first half of FY2024.

The past 12 months saw attrition for the sample set decline sharply to 12.8% in Q3 FY2025 from 22.3% in Q3 FY2023, as the overall slowdown in growth and substantial hiring in the previous fiscal year helped to address the earlier demand-supply imbalance. ICRA expects attrition rates to stabilize at a long-term average of 12-13% soon.

Furthermore, employee costs as a percentage of operating income (OI) slightly decreased to 56.2% in Q3 FY2025 from 57.0% in Q3 FY2024, due to moderated wage increases in the current fiscal year. This, along with enhanced employee utilization and cost structure optimization, supported the operating profit margins for the sample set at 22.5-23.0% in recent quarters, which are expected to remain stable through FY2026.

ICRA predicts that hiring will continue to be low in the near term until growth momentum picks up by the end of FY2026. The reduced hiring activities may also correlate with increased investments in GenAI by the industry, which are expected to yield benefits in terms of enhanced productivity and cost savings. Leading Indian IT services firms have trained a significant portion of their workforce in GenAI skills and are ramping up their capabilities and service offerings to provide GenAI-based solutions to their clients, as noted in the report.

"This initiative has begun to yield results as the influx of GenAI-related contracts for major industry players has increased in recent quarters and is expected to grow substantially over the medium term, as technology adoption becomes more widespread. The healthcare and BFSI sectors are among the early adopters of AI/GenAI capabilities and continue to invest in this area," Jotwani concluded.