Indian IT services companies are expected to record a moderate 4-6% growth in USD terms in FY 2026, according to an ICRA report released on Wednesday.
ICRA anticipates that attrition levels will stabilize around the long-term average of 12-13%. Moreover, hiring is likely to remain low until the growth momentum picks up by the end of FY 2026, the report states.
Deal wins for the 15 leading large- and medium-sized listed Indian IT services companies have remained resilient in recent quarters. Industry participants continue to sit on a healthy total contract value, providing revenue visibility over the near to medium term, according to the report.
The operating profit margins for the sample set of companies, which account for 60% of IT sector revenue, are expected to remain at 22.5-23% over the next three to four quarters.
Commenting on the near-term industry performance, ICRA Vice President Deepak Jotwani said: *”The growth momentum for ICRA’s sample set of IT services companies is likely to remain muted in the near term due to uncertainty over potential US trade tariffs and macroeconomic headwinds in key markets such as the US and Europe. ICRA projects a 4-6% revenue expansion in USD terms in FY 2026, following a 4-5% increase estimated for FY 2025. Policy changes by the US government for key sectors catered to by Indian IT services companies, as well as future interest rate trajectories, will remain key monitorables.”*
The sample set recorded a year-on-year revenue growth of 3.6% in USD terms in the first nine months of FY 2025, showing gradual recovery over the past three quarters. This was supported by a relatively lower base in FY 2024, a slight uptick in discretionary spending by customers in the banking, financial services & insurance (BFSI) and retail sectors in some markets, and investments in Generative AI (GenAI) initiatives translating into new order inflows.
ICRA highlighted some relief for industry players as attrition rates and wage cost inflation—concerns in FY 2023 and the first half of FY 2024—have eased.
Attrition for the sample set of companies dropped sharply to 12.8% in Q3 FY 2025 from 22.3% in Q3 FY 2023, as slower growth and strong hiring in the previous fiscal helped address the earlier demand-supply mismatch. ICRA expects attrition levels to stabilize at a long-term average of 12-13% in the near term.
Moreover, employee costs as a percentage of operating income (OI) declined marginally to 56.2% in Q3 FY 2025 from 57.0% in Q3 FY 2024, owing to moderation in wage hikes. This, coupled with increased employee utilization and cost optimization, supported operating profit margins at 22.5-23.0% in recent quarters, which are expected to sustain through FY 2026.
ICRA expects hiring to remain low in the near term until growth momentum picks up by the end of FY 2026. The lower hiring activity can also be attributed to increased investments in GenAI, which are expected to improve productivity and drive cost savings. Leading Indian IT services companies have trained a sizeable portion of their workforce in GenAI skills and have ramped up their capabilities to deliver AI-driven solutions.
“This has started to show results, as the inflow of GenAI-related deals for major industry players has risen in recent quarters and is expected to grow materially over the medium term, as technology adoption becomes more widespread. The healthcare and BFSI sectors remain early adopters of AI/GenAI capabilities and continue to invest in this space,”* Jotwani added.
(Inputs from IANS)