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The Indian IT sector is anticipated to report a weak exit for FY25 and provide unexciting guidance for FY26 amid rising global uncertainty. Analysts shared the macroeconomic slowdown has become a baseline scenario, with lower discretionary spending and elongated deal cycles impacting the pace of recovery.
According to a report by HDFC Securities, for Q4FY25, most IT majors will register revenue decline ranging from -1.8 per cent to +0.1 per cent on quarter or -1.6 per cent to +6 per cent in year-on-year terms due to a weak demand environment, lower billing days, and lower discretionary spends.
Tier-1 IT growth, which was anticipated to return to the pre-Covid growth level of around 8 per cent, now appears to be an uphill task. For FY26, the sector is expected to grow at 5.3 per cent, slightly better than the predicted 3.4 per cent for FY25, but still carries elements of uncertainty.
The predicted rise in discretionary spending will be pushed by the current macro uncertainty and ultimately, the recovery cycle. The increased activity in GCC/captives can impact the near-term growth prospects for the sector, the report observed.
On a slide
Alongside, the IT index is down by around 20 per cent YTD, reflecting a higher level of uncertainty caused by Trump’s reciprocal tariffs.
Gaurav Vasu, Founder, UnearthInsight, shared the firm revised the growth prediction to 3-5 per cent for the $280 billion industry, largely driven by the tariff’s impact on the retail/FMCG, pharma, BFSI sector whose discretionary spending would stagnate or reduce because of higher costs.
The growth of GCCs could also slow down the expected recovery in FY26. Mid-size specialised providers, ER&D, Pure Play Analytics, AI services, and boutique firms would continue to outgrow larger peers at 8-10 per cent in FY26, he shared.
Sujata Seshadrinathan, Co-founder and Director of Digital Transformations, Basiz Fund Services, echoed, “The US tariffs have spared export of services, leaving the significant contribution of over $205 billion the Indian IT sector makes unfazed. Higher inflation in the US could be triggered and cause reduced tech spending. US companies form a large part of Indian IT firms’ client base, which could face revenue declines if technology spend budgets and economic uncertainties happen as a part of the broader ramifications of the tariffs.”
Tailwinds ahead
However, the industry continues to see some tailwinds even in the hour of crisis. Srikanth Srinivasan, Vice-President and Head of membership and Outreach, at Nasscom, said, “FY25 results have improved from the previous fiscal’s. The industry grew at about 5.1 per cent; exports grew at about 4.6 per cent while domestic has been slightly higher at about 7 per cent. Certain sectors have been showing some positive trends — high-tech, BFSI, and certain pockets of manufacturing, trade, transport, and logistics. There has been a reasonable increase of about 0.5 per cent in tech spending, which was about 4.5 per cent last year. We see it going to about little over 5 per cent now.”
Published on April 4, 2025
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