According to reports, India’s information technology (IT) services sector is expected to witness low growth of 6-8 percent in rupee terms for the third consecutive year in FY26, reflecting continued macroeconomic headwinds and slowing demand in key markets such as the US and Europe.

“After a modest recovery this fiscal, growth in BFSI and the retail segments, will remain subdued at 3-5 percent in fiscal 2026 amid slowing economic growth and cautionary discretionary spends. Further, IT spends will remain focused on efficiency gains, consolidation and optimizing costs, in the near term,” says Anuj Sethi, senior director, Crisil Ratings.

Growth in key sectors is anticipated to stay weak. The banking, financial services, and insurance (BFSI) and retail industries, which make up approximately 45 percent of the total revenue, experienced a mere 2 percent growth in constant currency terms in FY25.

Manufacturing and healthcare, which together represent 20 percent of the revenue, saw a slight increase of 3-4 percent. This pattern is expected to persist in FY26, with growth in these sectors projected to remain low at 3-5 percent due to reduced discretionary spending and uncertainties in policy.

In response to slowing demand, IT companies are focusing on cost optimization through fewer headcount additions and higher employee utilization, estimated at about 85 percent.

The ratings agency noted that net headcount growth was minimal at 1 percent during the first nine months of FY25 and is anticipated to remain low in FY26 as well.

Attrition has leveled off at approximately 13 percent, but new hiring will probably remain cautious.

Although IT companies are combining AI and generative AI (Gen AI) solutions with their conventional services, the adoption of AI is still in its infancy and is not anticipated to significantly increase revenue in the short term.

Firms are also considering small and medium-sized acquisitions to improve their product offerings, but these initiatives are not expected to have a substantial effect on overall growth.

Despite subdued growth, operating margins are anticipated to remain robust at 22-23 percent due to limited hiring and stringent cost management.

The industry is encountering intensified competition from the increasing number of global capability centers (GCCs) being established in India. A sharper-than-anticipated decline in major markets could further complicate the growth challenges faced by the sector.

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With ongoing demand weakness and contract wins primarily centered on cost efficiency rather than transformation initiatives, the IT services industry is poised for another year of modest growth.