IT Services Revenue Growth and Net Headcount Addition To Remain Muted This Fiscal

Chennai: Information Technology (IT) services sector revenue growth and net headcount addition is set to stay muted this fiscal and the next as artificial intelligence (AI)-driven disruptions, weak discretionary spending and continuing geopolitical uncertainties deepen a four-year slowdown. While a 5-7% depreciation in the rupee would support revenue growth and operating profitability this fiscal, that tailwind is likely to fade next year.

“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. 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.” said Anuj Sethi, Senior Director, Crisil Ratings.

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. 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.

Mid-tier IT companies could prove to be nimble in this environment as they have continued to outperform larger peers sustaining steady double-digit growth over the last few fiscals, supported by their niche strengths, with large-sized acquisitions by select players also strengthening their market position. Nevertheless, 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.

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.

Crisil’s analysis is based on India’s top 26 IT services companies, which together account for 55% of the industry’s estimated revenue of Rs 16 lakh crore last fiscal.