Indian IT services companies have witnessed a moderation in growth momentum in the last two quarters in constant currency terms owing to the base effect and evolving macroeconomic headwinds in key markets of the US and Europe. Due to these headwinds, the decision-making towards discretionary IT spending has seen a slight deferment, while the cost optimisation deals continue to generate stable demand. ICRA’s sample set of leading IT services companies reported a YoY revenue growth of 18.4% in INR terms and 9.9% in USD terms in 9M FY2023, against ~17-18% YoY growth in USD terms in FY2022.The sample set also recorded a moderation of ~180-200 bps in OPM in 9M FY2023, compared to FY2022 levels, due to continued wage cost inflation (~80-100 bps) and normalisation of operational overheads. However, the same was partially offset by currency gains due to the depreciation of the INR against the USD and operational efficiencies.
Growth momentum of India’s IT services sector is expected to witness slowdown in the near to medium term, owing to the evolving macroeconomic headwinds leading to lower discretionary IT spending, according to ICRA. Indian IT services companies have witnessed a moderation in growth momentum in the last two quarters in constant currency terms, dragged down by the base effect and macro challenges in key markets of the US and Europe, the ratings agency says in a report.
Due to these headwinds, the decision-making towards discretionary IT spending has seen a slight deferment, while the cost optimisation deals continue to generate stable demand, it noted. “Growth momentum for the Indian IT services industry likely to slow down in the near to medium term,” ICRA said in a statement. The slowdown is on account of evolving macroeconomic headwinds leading to lower discretionary IT spending.
ICRA’s sample set of leading IT services companies reported a YoY revenue growth of 18.4 per cent in rupee terms and 9.9 per cent in dollar terms in the nine months of FY2023, against 17-18 per cent YoY growth in dollar terms in FY2022.
In terms of the segment-wise trend, growth in the BFSI segment, one of the key segments for IT companies, has tapered compared to the other segments in recent quarters, which is partially attributable to lower lending activity, according to the agency.
If the macroeconomic headwinds persist, the mortgage lending and the retail segments are expected to witness relatively higher moderation in growth, compared to the manufacturing and the healthcare segments, it adds.
However, the attrition is on a declining trend from the last two quarters and ICRA expects attrition to further decline over the next two-three quarters before stabilising, supported by a strong hiring in FY2022, which has addressed the demand-supply mismatch to an extent. “ICRA expects lower hiring by the IT service companies in the near term because of excess capacity added in FY2022 and expect.
Despite expectation of slowdown in growth momentum, ICRA maintains its stable outlook on the Indian IT services industry supported by its cost competitiveness, growing demand for IT services (including digital and cloud services) and healthy credit profile of industry participants. PTI MBI SHW MR.
