'Indian IT industry expected to grow 3-5% revenue in 2024'

NEW DELHI: The Indian IT industry is expected to see moderate revenue growth of 3 to 5 per cent in FY2024, lower than 9.2 per cent (year-on-year) growth in FY2023, a new report said on Tuesday.

According to the credit rating agency ICRA, key sectors like BFSI, retail, technology, and communication are expected to slow down discretionary IT spending.

The operating profit margin is expected to decline by 70-100 bps in FY2024 due to lower operating leverage.

"The operating profit margin (OPM) for the sample set is expected to decline by 70-100 bps in FY2024, due to lower operating leverage. Nevertheless, it will remain healthy at 20-21 per cent in FY2024, owing to the ability of most companies to work with multiple levers such as onshore-offshore mix, employee utilisation levels, employee pyramid optimisation, among others, to manage costs," said Deepak Jotwani, Assistant Vice President & Sector Head, ICRA.

In terms of segment-wise growth trends, the report said that BFSI and communication have tapered more than other segments. BFSI is impacted due to softness in mortgage, investment banking, capital markets and insurance segments amidst ongoing macroeconomic headwinds.

The communication vertical has been impacted because of the weakening revenue profile of telecom companies, as the investments made by the customers in 5G have not materialised meaningfully leading to the reprioritisation of its technology spending.

Moreover, the report mentioned that there has been a significant reduction in hiring by IT services companies in the last three quarters, given the slowdown in the growth momentum, coupled with utilisation of the considerable excess capacity added in FY2022 and in the first half (H1) of FY2023.

"ICRA expects lower hiring by the IT services companies in the near term because of the expected slowdown in growth and also estimates attrition to further decline over the next few quarters before stabilising at the long-term average of 13-15 per cent," Jotwani said.

In addition, the report stated that the Indian IT services industry continues to have a net cash surplus position with strong liquidity owing to a high level of operating cash flows and modest capex and working capital requirements.