IT Sector Revenues Grow 3 pc in FY25, Expects 3-5 pc Growth in FY26

Chennai: The Indian IT sector recorded a revenue growth of 3 per cent in constant currency terms in FY25, better than 1.2 per cent in FY24. The sector is expected to grow by 3 to 5 per cent in FY26, amidst increased digitisation and demand for emerging technologies.

While trade uncertainty is a significant concern for the IT industry, the IT-software industry has been re-aligning itself to cater to the evolving requirements of emerging technologies to become more effective in the dynamic business environment.

Compared to FY24, the IT industry saw better revenue growth of 3 per cent against 1.2 per cent in FY24 and much better than 0.7 per cent in FY21. However, during the pandemic year of FY22 revenues had grown by 17.2 per cent and 14.1 per cent in FY23, finds CareEdge.

The moderate growth of 3 per cent was mainly due to weakness in the key markets in the West amidst inflation, tariffs, and economic uncertainty. However, the deals won in the recent quarters provide revenue visibility for H1FY26. Further after the slowdown in deal momentum in H1FY25, things had improved in H2FY25.

In the first quarter and second quarter of FY25, the top five listed companies in the sector had won deals valued $16.1 billion and $15.3 billion. By the third quarter it went up to $16.5 billion and further to $20.3 billion in the fourth quarter.

“Currently, IT firms are trying to build investor confidence with their progress in AI, which will be the new tech frontier for the IT industry in India. Clients' digital initiatives continue to provide growth opportunities for IT services players. Generative AI, IoT Machine Learning, and cloud transformation are the fastest growing,” finds CareEdge.

Further, the financial services sector's recovery, coupled with their increased focus on cost-reduction, has led to an increase in deals in the H2FY25, which is expected to support revenues in FY26.

Among the top players, TCS posted 4.2 per cent growth in CC revenue in FY25. Infosys too witnessed revenue growth of 4.2 per cent and HCL Technologies saw 4.7 per cent growth in the last fiscal. Wipro alone reported a 2.3 per cent decline in revenue in FY25. In FY24, Wipro’s CC revenue growth had decreased by 4.4 per cent.

“While near-term challenges persist, we expect the Indian IT sector to sustain its growth momentum with a 3-5 per cent increase in constant currency revenue in FY26, driven by economic recovery and resilient demand from key geographies,” finds CareEdge.

TCS hopes that overall FY26 would be a better year than FY25.

Meanwhile, margin weakness remains a concern for IT companies due to increased employee compensation, higher cost of third-party items and increased investments in AI technology R&D.

Though the margins in FY25 at 25.4 per cent is lower than 28.5 per cent in FY21, it has improved from FY23 level of 24.5 per cent and FY24 level of 24.6 per cent. The improving margins provide room for hiring. As per NASSCOM data, the IT sector has 5.8 million employees and it added 1,26,000 in FY2025.

Information technology (IT) services firm Cognizant is reportedly planning to onboard 20,000 freshers in 2025, aiming to expand its talent pyramid to prepare for managed services and artificial intelligence (AI)-led software development.

While IT companies will keep adding people for emerging technologies, overall hiring prospects look bleak.

“The operating margins are expected to remain range bound in FY26, amidst global economic uncertainties and increasing use of AI, which might affect the headcount,” said Tanvi Shah, Director at CareEdge Advisory & Research.