India's IT services revenue growth to stay muted over next two fiscal years amid AI disruption, weak demand: Crisil

India's information technology (IT) services sector is expected to see subdued revenue growth over the current and next fiscal year as artificial intelligence (AI)-led disruptions, weak discretionary spending and persistent geopolitical uncertainties continue to weigh on demand, according to a Crisil Ratings report. 

The report said a 5-7% depreciation in the rupee could provide a temporary boost to revenue growth and operating profitability during the current fiscal. However, this currency tailwind is expected to moderate next year, leaving the sector increasingly dependent on its ability to adapt to structural changes driven by AI. 

Crisil's analysis covers the country's top 26 IT services companies, which account for around 55% of the industry's estimated revenue of ₹16 lakh crore in the previous fiscal. Tier-I firms with annual revenues exceeding ₹40,000 crore make up nearly 85% of the sample, while mid-tier companies account for the remaining share. 

"AI is no longer just a productivity lever for IT services companies; it is beginning to challenge their traditional revenue model," said Anuj Sethi, Senior Director, Crisil Ratings. 

"Rising adoption of AI-native solutions is intensifying pricing pressure, triggering deal renegotiations and slowing execution as clients reassess technology spending. At the same time, weak discretionary spending and uncertainty in the US and Europe continue to weigh on demand. This will keep revenue visibility modest over the near term," he added. 

According to the report, AI adoption is fundamentally changing the industry's operating landscape, with clients increasingly seeking AI-native solutions that require fewer billable hours. This shift is putting pressure on conventional revenue models while also forcing companies to rethink their business strategies and expand into emerging technology-led services. 

Despite the challenging environment, Crisil expects mid-tier IT companies to remain relatively resilient. These firms have consistently outperformed larger peers over the past few years, supported by niche capabilities and strategic acquisitions that have strengthened their market position. However, the broader industry slowdown is likely to moderate their momentum, with revenue growth expected to remain in the high single digits over the current and next fiscal. 

The subdued demand outlook is also expected to keep hiring muted across the sector. Crisil said net headcount additions are likely to remain limited over the next two fiscal years as companies focus on improving productivity, protecting margins and increasing employee utilisation. Hiring is expected to remain selective, with demand concentrated in AI-related skills. 

"Prudent resource management and currency tailwinds should help the sector sustain healthy operating margins of 22-23% this fiscal. But that cushion could narrow from next fiscal as revenue pressures persist, talent costs rise, AI investments continue and forex support moderates," said Aditya Jhaver, Director, Crisil Ratings. 

Even as growth remains under pressure, the report said the sector's credit profile is expected to remain stable, supported by strong balance sheets, low leverage, healthy liquidity and robust cash generation. These strengths will enable companies to continue investing in technology upgrades and pursue selective acquisitions in high-growth areas such as AI, cloud computing, cybersecurity, and digital engineering while keeping debt levels low.