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Growth of IT sector to slow down further in FY24

Indian IT companies revenue growth will slow down further to mid-single digits amid intensifying headwinds for the nearly $250 billion dollar sector, domestic rating agency ICRA said on Wednesday.

The continuing uncertainties are set to take their toll on hiring, and companies are expected to keep employee addition at “low levels” in the near term, the rating agency said, adding that the net addition is negative in the last two-quarters of FY23.

As per industry lobby grouping Nasscom’s report published in March, the sector’s growth slowed down to 8.4% in FY23 from over 15% in the previous fiscal.

“Despite a strong order book and deal pipelines of Indian IT services companies, ICRA expects the revenue growth to remain subdued in mid-single digits in USD terms in FY2024”, the agency said.

It has maintained its stable outlook for companies in the sector, which is generally known to have the best quality on leverage positions.

The agency said the growth momentum witnessed a slowdown in the last two quarters due to macroeconomic headwinds in the U.S. and Europe, which together account for up to 90% of the industry’s revenues.

On a sectoral basis, growth from the banking, financial services and insurance segment, which contributes nearly a third of the overall revenues, tapered more than other segments because of the crisis in American banks, it said.

There are delays in decision-making by customers, as visible from the slowdown in the conversion of deals to revenues to some extent, it added.

On the profitability front, ICRA said companies in its sample set witnessed a 1.90% narrowing in the operating profit margins to 22.9% in FY23 and added that it expects the number to remain steady despite the slowdown in revenue growth.

From an employee addition perspective, the top five companies in the sector added 83,906 people in FY23 compared to 2.73 lakh in FY22.

Hiring will “remain at low levels in the near term till the macroeconomic uncertainty continues”, the agency added. PTI

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