Crisil Ratings in its latest report has said that artificial intelligence (AI)-driven disruptions, alongside weak discretionary spending and continuing geopolitical uncertainties are expected to keep revenue growth of India's information technology (IT) services sector muted this fiscal year and the next one. It further noted that a weaker rupee is likely to support IT companies' revenue growth and operating profitability this fiscal, though the currency advantage is expected to fade next year.
According to the report, mid-tier IT companies could prove to be nimble in this environment. For the broader industry, the key test will be how quickly companies reinvent business models, adapt effectively to the changing industry landscape and expand into newer services. Credit profiles may remain stable, supported by robust balance sheets, low debt and healthy liquidity.
Crisil Ratings further stated that mid-tier IT firms have continued to outperform larger peers sustaining steady double-digit growth over the last few fiscals, supported by their niche strengths, with large-sized acquisitions by select players also strengthening their market position. Nevertheless, the overall muted industry outlook is expected to temper momentum, with their growth likely to remain at high single-digit levels over this fiscal and the next.
It also said that notwithstanding the mid-tier’s rise, the subdued growth outlook and rising AI-propelled disruptions are also reshaping hiring. Net headcount addition in the sector is expected to remain muted this fiscal and the next as companies focus on defending margins and improving productivity. Automation, higher employee utilisation and selective hiring for AI-related skills will remain the key levers.
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