Indian IT services to grow 6-8% in FY26, with focus on AI, cost-cutting: Crisil

The Indian IT services sector is projected to sustain its 6-8% (in rupee terms) growth in fiscal 2026, amidst continuing macroeconomic headwinds and emerging uncertainties in the key markets of the US and Europe, a report said on Thursday. The revenue growth will also be supported by currency depreciation benefits of 2%, according to the Crisil Ratings report.

This will be the third consecutive fiscal of a single-digit growth cycle for the $283 billion Indian IT services sector, which employs over five million professionals. The report comes at a time when the industry is drawing curtains to another financial year. Nevertheless, operating profitability remains healthy, led by modest employee addition amid low attrition, it said.

The Indian IT services sector, a major growth driver for the Indian economy, is dominated by companies like Tata Consultancy Services (TCS), Infosys, Wipro, Tech Mahindra, and HCL Technologies, among others. Crisil Ratings analysed the top 24 Indian IT services providers that account for around 55% of the industry revenue of approximately ₹15 lakh crore to release the findings.

Nearly, two-thirds of these revenues are contributed by banking, financial services, and insurance (BFSI; revenue share of ~30%), retail (~15%), manufacturing (10%) and healthcare (10%) while technology and services, communications and media form the bulk of remaining.

In fiscal 2025, Crisil said, revenue from the BFSI and retail segments made marginal recovery, growing by around 2% (on constant currency terms), while manufacturing and healthcare growth remained sluggish at 3-4% amid macro challenges.

Anuj Sethi, Senior Director, Crisil Ratings, said, “After a modest recovery this fiscal, growth in BFSI and the retail segments, will remain subdued at 3-5% in fiscal 2026 amid slowing economic growth and cautionary discretionary spends. Manufacturing and healthcare segments will also remain at low single digits due to policy uncertainties. Further, IT spending will remain focused on efficiency gains, consolidation and optimising costs, in the near term.”

Notwithstanding, IT services companies are expected to record healthy deal wins with increasing focus on artificial intelligence (AI) and generative AI (GenAI) aspects across all segments. While AI adoption is still evolving, players are now bundling AI-based offerings with their traditional services making it more efficient for the end users.

A report by consulting firm EY India published in February revealed that the integration of GenAI into India's IT industry is expected to boost productivity by 43% to 45% over the next five years. The report said that this increase is attributed to the adoption of GenAI by IT companies and the transition of client projects from proof of concept to full-scale production.

The segment players are responding to the modest growth outlook by rationalising costs primarily through controlled headcount additions (net of attritions), which after dipping in fiscal 2024 saw a negligible 1% growth in the first nine months of this fiscal.

Aditya Jhaver, Director, Crisil Ratings, said, “We expect domestic IT services providers to remain cautious on fresh hiring in fiscal 2026 and maintain focus on employee utilisation, estimated at ~85%. With attrition remaining stable at ~13% and flexibility of optimising the onshore/offshore mix amid criticality of the services offered, the operating margin will sustain at a healthy 22-23%.”

That said, the segment players will continue to eye acquisitions, especially small and mid-sized opportunities that could enhance their product baskets and digital capabilities. Nevertheless, reliance on debt will be limited given expectations of stable cash generation, strong balance sheets and sizeable cash surpluses which will lend stability to credit profiles.

Experts, including Phil Fersht of HFS Research, predict a rise in M&A activities in the upcoming year, particularly in sectors that can generate additional revenue. According to him, IT firms are expanding their service offerings and profitability by acquiring companies that focus on niche segments. This allows them to promptly tap into specialised skills, knowledge, and technology, while also building robust client relationships.

Crisil maintained that the sector shall remain vulnerable to the increasing number of global capability centres being set up in India. Also, a sharper-than-expected slowdown in economic growth in key markets could pose further downside risks to the growth estimates.

On a related report published today by Nasscom reveals India's IT sector revenue surged from ₹10,13,148 crore ($118 billion) in FY15 to an estimated ₹24,29,838 crore ($283 billion) in FY25, with export revenue projected at ₹19,23,264 crore ($224 billion).
Industry body Nasscom had earlier said that the domestic IT sector is expected to grow at a higher pace this fiscal year, driven by engineering research and development and the rising number of global capacity centres (GCC), or low-cost offshore hubs.

Nasscom expects the industry's revenue will grow 5.1% to $282.6 billion in fiscal 2025, compared with the previous fiscal's 4%, with revenue crossing $300 billion in fiscal 2026.

The industry body added that the sector is expected to add 126,000 jobs on a net basis, taking the total workforce to 5.8 million in fiscal year 2025. The industry's total headcount rose to 5.67 million in fiscal 2024 from 5.58 million a year earlier.