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Icra Ratings in its latest report has said that Indian IT services sector's revenue growth will slow down to 3-5 per cent in the current fiscal (FY24) from 9.2 per cent in the previous financial year. It said the profitability will also take a beating in this financial year and the operating profit margin will narrow by up to 1 percentage point to 20-21 per cent.

It said Indian IT services companies witnessed a sharp moderation in growth momentum between Q3 FY23 to Q1 FY24 owing to the evolving macroeconomic headwinds in key markets of the US and Europe. It stated its sample set recorded a revenue growth of 3.8 per cent in the first quarter in USD terms, the lowest in the last 10 quarters. He added among the geographies, growth in the US witnessed a sharp moderation compared to that in Europe.

Icra Ratings’ sector head Deepak Jotwani said there has been persistent uncertainty in the key markets for IT companies which has resulted in pauses and deferral of non-critical projects and slowdown in discretionary IT spends by key sectors like banking, financial services and insurance, retail, technology and communication. Jotwani said lower operating leverage will limit the impact of the slower revenue growth on the profitability, and the ability of most companies to work with multiple levers such as onshore-offshore mix, employee utilisation levels, employee pyramid optimisation, and ability to manage costs will help.