India's IT services sector growth to remain muted in 2 fiscals over AI disruptions, weak spends
New Delhi, July 16
Information technology services sector revenue growth in India is set to stay muted this fiscal and the next, as artificial intelligence-driven disruptions, weak discretionary spending and continuing geopolitical uncertainties deepen a four-year slowdown, a report showed on Thursday.
Mid-tier IT companies could prove to be nimble in this environment. For the broader industry, the key test will be how quickly companies reinvent business models, adapt effectively to the changing industry landscape and expand into newer services, said a Crisil Ratings report.
While a 5-7 per cent depreciation in the rupee would support revenue growth and operating profitability this fiscal, that tailwind is likely to fade next year, it said, adding that credit profiles should remain stable, supported by robust balance sheets, low debt and healthy liquidity.
"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," said Anuj Sethi, Senior Director, Crisil Ratings.
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, he mentioned.
The overall muted industry outlook is expected to temper momentum, with their growth likely to remain at high single-digit levels over this fiscal and the next.
"Notwithstanding the mid-tier's rise, the subdued growth outlook and rising AI-propelled disruptions are also reshaping hiring. Net headcount addition in the sector is expected to remain muted this fiscal and the next as companies focus on defending margins and improving productivity," said the report.
Automation, higher employee utilisation and selective hiring for AI-related skills will remain 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, Crisil Ratings.
Overall, the sector remains exposed to heightened uncertainties stemming from AI disruptions, even as geopolitical and macroeconomic headwinds continue to constrain demand in key export markets.
— IANS
Reader Comments
Interesting perspective from Crisil. The rupee depreciation is a double-edged sword—helps margins now but won't last. The real issue is that US and European clients are tightening belts. We need to look beyond traditional markets and invest in AI-driven solutions. Otherwise, we'll lose to China and Eastern Europe.
Honest question: Is AI really a threat or just another hype cycle? Remember when cloud was supposed to kill IT services? Yet here we are, still growing. But I guess this time is different because AI is actually automating coding and testing. The report's call for 'business model reinvention' is spot on. 🧠
I work in a mid-tier IT firm in Bangalore, and I can confirm the nervousness. Clients are cutting projects, and we're being asked to do more with less. The report's mention of 'selective hiring for AI skills' is true—everyone wants data scientists now. But what about the thousands of freshers who will struggle to get jobs? 😕
A respectful criticism: The report focuses too much on the negative. Indian IT has survived Y2K, recession, and now COVID. We have a strong talent pool and entrepreneurial culture. Yes, AI will disrupt, but it also creates opportunities—maintenance of AI systems, ethical AI consulting, etc. Let's not lose hope. The 'muted growth' might be a temporary phase. 💪
Bhai, this is exactly why we shouldn't put all eggs in the IT basket. Our domestic manufacturing and services need more attention. But for the IT
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.