Revenue growth in the IT services sector may drop to 3% in FY24, according to ICRA

According to a domestic ratings business, the revenue growth of the Indian IT services sector will decrease to 3% in the current fiscal year from 9.2% in the prior fiscal year. According to ICRA Ratings, this fiscal year’s profitability would also suffer, and the operating profit margin will drop to 20–21%, a reduction of up to one percentage point. As per the agency, topline growth would decrease from the 9.2% recorded in FY23 to between 3 and 5% in FY24 due to weaker demand.

Deepak Jotwani, the sector head for the agency, claimed that “persistent uncertainty” in the key markets for IT companies has led to the suspension and postponement of non-critical projects as well as a slowdown in discretionary IT spending by important industries like banking, financial services and insurance, retail, technology, and communication.

A report from the industry association Nasscom, the sector directly employs more than 50 lakh people, and analysts claim that because of its spectacular development as demand for technological inputs increased, it was essential for the post-pandemic recovery of the economy.

According to the agency, the macroeconomic headwinds in the important US and European markets caused a severe slowdown in growth momentum for Indian IT services companies between Q3 FY23 and Q1 FY24.

BFSI and communication have tapered more than other segments in terms of overall growth tendency. The BFSI has been negatively impacted by softness in the mortgage, investment banking, capital markets, and insurance sectors, while the communication sector is struggling due to a deteriorating income profile of telecom companies due to 5G investments.

The order book and transaction pipeline of the majority of enterprises, the agency stated, remain healthy even though the revenue conversion of the orders slowed down. Icra Ratings further stated that as the macroeconomic obstacles pass at the conclusion of the current fiscal, it is likely that the growth momentum will pick up.

Icra Ratings stated that it retains the “stable” assessment of the sector from the perspective of credit profiles, citing the strong balance sheets of industry participants and their well-established business positions as advantages.

The majority of industry players’ financial profiles are likely to remain strong, the agency said, supported by strong cash flow generation, lower debt levels, and strong liquidity. This is true despite ongoing sizable dividend payouts or share buybacks and inorganic investments, the agency added.

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