New Delhi–Revenue growth in India’s information technology services sector is expected to remain subdued through fiscal 2027 and fiscal 2028 as artificial intelligence disrupts traditional business models and clients limit discretionary spending, according to a new report.
Crisil Ratings said geopolitical uncertainty and weak demand in major export markets are extending a slowdown that has affected the industry for four years.
Mid-sized IT companies could perform relatively well because of their ability to respond quickly to changing market conditions. However, the broader industry’s performance will depend on how rapidly companies reinvent their business models, adapt to the evolving technology landscape and expand into new services, the report said.
A projected 5% to 7% depreciation in the rupee is expected to support revenue growth and operating profitability this fiscal year, although the benefit will likely diminish in fiscal 2028.
The sector’s credit profiles are expected to remain stable because of strong balance sheets, low debt levels and healthy liquidity.
“AI is no longer just a productivity lever for IT services companies; it is beginning to challenge their traditional revenue model. Rising adoption of AI-native solutions is intensifying pricing pressure, triggering deal renegotiations and slowing execution as clients reassess technology spending,” said Anuj Sethi, Senior Director, Crisil Ratings.
Weak discretionary spending and economic uncertainty in the United States and Europe are also weighing on demand and limiting near-term revenue visibility, Sethi said.
Mid-tier IT companies are expected to record high-single-digit growth during fiscal 2027 and fiscal 2028, although the industry’s overall weak outlook is likely to restrain their momentum.
The slowdown and growing use of AI are also changing hiring patterns across the sector. Net headcount additions are expected to remain limited over the next two fiscal years as companies focus on protecting margins and increasing productivity.
Automation, higher employee utilization and selective recruitment for AI-related skills are expected to remain key priorities.
“Prudent resource management and currency tailwinds should help the sector sustain healthy operating margins of 22-23 per cent this fiscal. But that cushion could narrow from next fiscal as revenue pressures persist, talent costs rise, AI investments continue and forex support moderates,” said Aditya Jhaver, Director, Crisil Ratings.
The sector will remain exposed to uncertainty caused by AI-driven disruption, while geopolitical and economic pressures continue to constrain technology spending in key international markets. (Source: IANS)
