ICRA Forecasts 2–3% Growth For Indian IT Sector In FY26, Outlook Stable

The subdued earnings momentum is largely attributed to uncertainties stemming from the US tariff imposition, which is expected to weigh on IT budget allocations in key markets

The US and Europe continue to dominate the Indian IT services revenue landscape, accounting for 80-90 per cent of total industry revenues

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Credit rating agency ICRA has reaffirmed a stable outlook for the Indian IT services industry, forecasting a year-on-year revenue growth of 2–3 per cent in US dollar terms for the fiscal year 2025-26.

ICRA's analysis, based on a sample of 15 leading IT companies representing approximately 60 per cent of the industry's revenue, indicates that the sector will experience modest revenue growth of 2–3 per cent in FY2026, slightly lower than the 2.9 per cent growth recorded in FY25.

The subdued earnings momentum is largely attributed to uncertainties stemming from the US tariff imposition, which is expected to weigh on IT budget allocations in key markets.

"Notwithstanding some recovery in operating income rise in recent quarters, the Indian IT services industry is unlikely to witness any material uptick in earnings momentum in FY2026 owing to the uncertainties arising due to US tariff imposition," ICRA said.

The US and Europe continue to dominate the Indian IT services revenue landscape, accounting for 80-90 per cent of total industry revenues. Growth in these regions was moderate throughout FY25, with the final quarter witnessing a slight decline. The outlook for Q1 FY26 remains cautious, as the tariff-related uncertainties in the US are anticipated to restrain spending on IT services, thereby impacting industry performance.

Hiring is projected to remain low until there is a clearer improvement in demand. However, as the sector adapts to rapid technological advancements, particularly in artificial intelligence (AI) and generative AI (GenAI), the need for skilled professionals is expected to become a critical factor influencing future hiring decisions. Subsequent quarters of FY2026 may see hiring aligned more closely with sectoral growth and technology adoption trends.

ICRA also highlighted the potential benefits of the India-UK Free Trade Agreement (FTA) for the Indian IT services industry. A key provision exempting social security contributions for three years for UK-based temporary Indian employees and their employers is expected to enhance workforce mobility between the two countries. While the financial impact of this measure may be modest, it is seen as a positive step to facilitate talent movement and strengthen business ties.

The forecast is based on data and disclosures from a representative sample of 15 companies, including industry giants such as Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies, and Tech Mahindra, among others.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)