IT industry staring at third straight year of single-digit growth in FY26: Crisil Ratings

Growth across major segments, including banking, financial services, and insurance (BFSI) and retail sectors, is expected to be sluggish.

India’s information technology (IT) services sector is expected to witness low growth of 6-8 percent in rupee terms for the third consecutive year in FY26, reflecting continued macroeconomic headwinds and slowing demand in key markets such as the US and Europe, Crisil Ratings has said.

“After a modest recovery this fiscal, growth in BFSI and the retail  segments, will remain subdued at 3-5 percent in fiscal 2026 amid slowing economic growth and cautionary discretionary spends. Further, IT spends will remain focused on efficiency gains, consolidation and optimising costs, in the near term,” Anuj Sethi, senior director, Crisil Ratings, said in a release on March 27.

Growth across major segments will remain sluggish. The banking, financial services, and insurance (BFSI) and retail sectors, which contribute around 45 percent to the revenue, recorded only a 2 percent growth in constant currency terms in FY25.

Manufacturing and healthcare, which account for 20 percent of the revenue, grew by a modest 3-4 percent.

The trend is likely to continue in FY26, with growth in these segments expected to remain subdued at 3-5 percent due to weak discretionary spending and policy uncertainties.

In response to slowing demand, IT companies are focusing on cost optimisation through fewer headcount additions and higher employee utilisation, estimated at about 85 percent.

The ratings agency said net headcount growth remained negligible at 1 percent in the first nine months of FY25 and is expected to stay subdued in FY26 as well.

Attrition has stabilised at around 13 percent but fresh hiring will likely be cautious.

While IT players are bundling AI and generative AI (Gen AI) offerings with traditional services, AI adoption still remains in its early stages and is unlikely to significantly boost revenue in the near term. Companies are also eyeing small and mid-sized acquisitions to enhance their product portfolios but these efforts are not expected to materially impact overall growth, Crisil said.

Despite muted growth, operating margins are expected to remain healthy at 22-23 percent on the back of tepid hiring and cost controls.

The sector faces increasing competition from the growing number of global capability centres (GCCs) being set up in India.

A sharper-than-expected slowdown in key markets could further exacerbate the sector’s growth challenges.

Persistent demand softness and deal wins focused more on cost optimisation than transformation projects, the IT services sector is set for another year of modest growth.