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IT services cos revenue growth to plunge 700-900 bps in fiscal 2024

Operating margins to improve marginally from fiscal 2023 lows as firms tighten employee costs to 10-12% in fiscal 20241 amid global macroeconomic and financial sector headwinds in key markets2.

This will follow a strong 18-20% growth expected in fiscal 2023 (accentuated by a sharp depreciation of 7-8% in the rupee) and ~19% in fiscal 2022 (the highest in eight years up till then).

However, healthy growth in cost-optimisation deals, along with strong digital solutions, cloud, and automation capabilities, and a wide range of offerings will support the demand scenario.

The banking, financial services and insurance (BFSI) segment accounts for ~30% of the sector’s revenues, followed by retail and consumer packaged goods with ~15%, with the balance almost equally contributed by life sciences and healthcare, manufacturing, technology and services, communication and media, and others.

Operating profitability, meanwhile, will see a modest improvement of 50-60 bps to ~23% in fiscal 2024, as IT service firms cut back on new hiring and rein in employee costs.

A CRISIL Ratings study of the top 17 firms, which accounted for ~71% of the ~Rs 10.2 lakh crore Indian IT services sector revenue last fiscal, indicates as much.

Says Anuj Sethi, Senior Director, CRISIL Ratings, “Headwinds in key markets, especially the BFSI segment in the US and Europe, will affect the revenue growth of domestic IT services companies. While BFSI segment revenue growth is expected to halve to mid-single digit, it would be marginally offset by 12-14% growth in the manufacturing segment and 9-11% growth in other segments. Net-net, there would be moderation in overall revenue growth. Notably, IT spends by clients are witnessing a shift towards cost optimisation and vendor consolidation away from discretionary spends by most end-user industries.”

CT Bureau

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