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Crisil Ratings has said that the Indian IT services sector is staring at a second consecutive year of muted revenue growth due to modest increase in tech spends in Europe and the US. It expects the sector to grow at 5-7 per cent in FY25, after a growth of 6 per cent estimated to have been achieved in FY24. The overall industry size is pegged at $250 billion and it creates over 50 lakh direct jobs.

The industry is, however, expected to sustain in the key metric of profitability, as the operating profit margins will be stable at 22-23 per cent, the agency said, attributing it to prudent management of employee costs. It said the sectoral revenues achieved a compounded annual growth rate of 12 per cent for the decade through FY24.

It stated high interest rates and economic slowdown in client markets led to a modest single-digit growth in tech spends by companies in the banking, financial services and insurance (BFSI), retail, technology and communications sectors in FY24. It said these four sectors account for nearly two-thirds of the industry's revenues.

Aditya Jhaver, director at Crisil said ‘The slowdown in technology spend will continue this fiscal, weighing on the revenue growth of IT service providers.’ Jhaver said revenue from BFSI and retail segments will continue to be a drag with subdued growth of 4-5 per cent in FY25.