The Indian IT services sector is poised to maintain a steady growth trajectory of 6-8% in fiscal year 2026, despite facing ongoing macroeconomic challenges and uncertainties in its primary markets of the United States and Europe. According to a recent report from Crisil Ratings, this revenue expansion is expected to benefit from a 2% currency depreciation, providing a helpful boost to the sector.
Sustained Growth Amid Challenges
For the third consecutive fiscal year, the Indian IT services industry is on track for mid-single-digit growth. While the sector contends with economic fluctuations, its operating profitability remains robust, supported by modest employee growth and low attrition rates.
Crisil Ratings conducted an analysis of the top 24 Indian IT service providers, which collectively represent about 55% of the industry’s total revenue, estimated at ₹15 lakh crore.
- Key revenue contributors include:
- Banking, Financial Services, and Insurance (BFSI): approximately 30%
- Retail: around 15%
- Manufacturing: about 10%
- Healthcare: another 10%
Sector-Specific Insights
In fiscal 2025, Crisil observed a slight recovery in revenue from the BFSI and retail sectors, which grew by approximately 2% in constant currency terms. However, growth in manufacturing and healthcare sectors was slower, hovering around 3-4% due to persistent macroeconomic hurdles.
Anuj Sethi, Senior Director at Crisil Ratings, commented, “Following a modest recovery this fiscal year, we anticipate growth in BFSI and retail segments to be subdued at 3-5% in fiscal 2026, primarily driven by slowing economic conditions and cautious discretionary spending. The manufacturing and healthcare sectors are also likely to experience low single-digit growth amid policy uncertainties.”
Emphasis on Artificial Intelligence
Despite these challenges, IT service companies are expected to achieve significant deal wins, particularly as interest in artificial intelligence (AI) and generative AI (Gen AI) continues to rise across all sectors. As AI integration matures, providers are increasingly bundling these advanced technologies with their existing services, enhancing efficiency for clients.
To adapt to a modest growth outlook, companies in the sector are focusing on cost rationalization, particularly through controlled headcount additions. After a decline in fiscal 2024, net employee growth has stabilized at a minimal 1% increase during the first nine months of the current fiscal year.
Aditya Jhaver, Director at Crisil Ratings, noted, “We expect domestic IT service providers to remain prudent regarding new hiring in fiscal 2026, with a strong emphasis on employee utilization, estimated at around 85%. With attrition rates stabilizing at approximately 13% and the flexibility to optimize onshore and offshore resources, operating margins are projected to remain healthy at 22-23%.”
Strategic Acquisitions and Financial Stability
IT service providers are actively pursuing acquisitions, particularly targeting small to mid-sized firms that can bolster their product offerings and digital capabilities. However, reliance on debt is expected to be minimal, thanks to stable cash generation, strong balance sheets, and robust cash surpluses that enhance credit profiles.
Crisil pointed out that the sector remains susceptible to the rising number of global capability centers being established in India, along with potential risks stemming from a sharper-than-expected economic slowdown in key markets.
Consequently, Crisil predicts that debt-to-earnings before interest, tax, depreciation, and amortization (EBITDA) ratios and interest coverage ratios will remain solid at 0.7-0.8 times and 15-16 times, respectively, during fiscals 2025-2026, consistent with fiscal 2024 levels.
In summary, while the Indian IT services industry faces macroeconomic challenges and sector-specific hurdles, it is well-positioned for continued growth and innovation, particularly in the realm of AI and efficiency optimization.
