New Delhi [India], March 12 (ANI): Indian IT services companies will witness a moderate 4-6 per cent revenue expansion in USD terms in Financial Year 2026 (FY26), the ICRA said in its projection on Wednesday.
Further, ICRA anticipates attrition levels to stabilize around the long-term average of 12-13 per cent over the near term.
Moreover, the credit rating agency added that the hiring is likely to remain low until the growth momentum picks up by the end of FY2026.
The operating profit margins (OPM) for the sample set are expected to sustain at 22.5-23.0 per cent over the next three to four quarters.
Commenting on the near-term expectations on industry performance, Deepak Jotwani, Vice President & Sector Head, ICRA, said, “The growth momentum for ICRA’s sample set of IT services companies is likely to remain muted over the near term, owing to the looming uncertainty related to the imposition of US trade tariffs and macroeconomic headwinds across the key markets of the US and Europe.”
As per the firm, its sample set 1 recorded a YoY revenue growth of 3.6 per cent in USD terms in 9M FY2025, witnessing gradual recovery over the past three quarters.
The recovery was supported by a relatively lower base of FY2024, a slight uptick in discretionary spending by customers in the banking, financial services and insurance (BFSI) and retail sectors in some markets and investments in Generative AI (GenAI) initiatives translating into new order inflows.
ICRA highlighted that there has been some respite for industry players with the easing of attrition rates and wage cost inflation, which had surfaced as areas of concern over FY2023 and H1 FY2024. The last 12 months’ (LTM) attrition for the sample set companies corrected sharply to 12.8 per cent in Q3 FY2025 from 22.3 per cent in Q3 FY2023 as the overall slowdown in growth momentum and strong hiring in the previous fiscal addressed the demand-supply mismatch witnessed earlier. ICRA expects attrition levels to stabilize at a long-term average of 12-13 per cent over the near term.
Moreover, employee cost as a per centage of operating income (OI) declined marginally to 56.2 per cent in Q3 FY2025 from 57.0 per cent in Q3 FY2024 owing to moderation in wage hikes in the current fiscal. This, coupled with increased employee utilization and optimization of the cost structure, supported the OPM for the sample set at 22.5-23.0 per cent in recent quarters, which are expected to sustain over FY2026.
ICRA expects hiring to remain low in the near term until the growth momentum picks up by the end of FY2026. Lower hiring activity can also be correlated with higher investments by the industry in GenAI and the expected benefits in terms of increased productivity and cost savings. Leading Indian IT services companies have trained a sizeable portion of their employee base in GenAI skills and have already started ramping up their capabilities and service offerings to deliver GenAI-based solutions to their clients.
The firm said that while near-term revenue pressures exist and deal cycles have elongated further, overall deal wins for the industry in recent quarters have remained resilient. Industry participants continue to sit on healthy total contract value, which provides revenue visibility over the near to medium term, it added. (ANI)
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