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Ratings agency Crisil in its latest report has said that the information technology (IT) services sector will see a sharp fall in revenue growth to 12-13 per cent in FY23 from 19 per cent in FY22. However, the current depreciation in the rupee, strong demand for new age technologies like artificial intelligence, cloud computing and Internet of Things will help the over $220-billion sector maintain a double digit growth.

The report stated that the moderation from 19 per cent to 12-13 per cent will be the highest in the last eight years and attributed the decline to expected tightening of IT expenditure by corporates amid the inflationary headwinds in the United States and European Union (EU), which together contribute almost 85 per cent to the sector's revenue. It also said the revenue growth in FY22 was higher on a lower base of 6 per cent in the COVID-hit FY21.

The agency further said that there can be a marginal fall in profit margins to 22-23 per cent from 24 per cent due to rising employee costs and travel expenses and added that operating profitability will be healthy. Revenue contribution from the new-age digital business stream will cross 50 per cent mark in FY23 from the 47 per cent level on higher spending on cloud infrastructure, which is expected to grow 1.5 times in the next three years, and increasing adoption of new-age technologies such as cyber security and Internet of Things.