IT sector revenue growth to remain stable at ~6% through FY27: Brickwork Ratings
According to Brickwork Ratings, India's IT sector is undergoing a structural shift from volume-based contracts to high-value digital services, driven by hyperautomation and artificial intelligence (AI). The sector recorded USD 418 billion in services exports in FY26, while revenue growth is estimated at 6.1% in FY26 and projected at 6.0% in FY27. Early results for Q1 FY27 from the sector’s largest firms broadly validate this trajectory. India's IT services sector began FY27 on a soft note. Larger tier-1 firms posted modest low-single-digit growth in constant currency terms, though revenue in rupee terms appeared higher on account of currency depreciation, while margins came under pressure from annual wage hikes and continued investment in AI talent. Mid-sized firms fared somewhat better on growth, and steady deal wins and rising AI-led revenue helped keep the sector's medium-term outlook intact.
Brickwork Ratings maintains a stable credit outlook, supported by steady technology exports, AI adoption and policy support, but subject to operational realignment and investment in specialised capabilities basis AI-led developments.
AI-led transformation supports growth
India's second position globally in AI skill development and India AI Mission's deployment of more than 38,000 GPUs are supporting the sector's transition, according to the ratings agency. “More than 1,700 Global Capability Centres (GCCs) are leveraging domestic data-centre capacity, expanding at over 20% annually. The sector further benefits from a 15.5% common safe harbour margin for consolidated IT categories introduced in the Union Budget 2026-27,” said Rajeev Sharan, Head of Research, Brickwork Ratings.
A safe harbour margin is a fixed, acceptable profit rate set by the government. If a company prices its international transactions to yield at least this specified profit margin, tax authorities accept it without audit.
Margins set to recover, deleveraging to strengthen financial resilience
Operating margins are estimated to have moderated to 20.1% in FY25 as companies absorb higher costs of specialised AI talent. As digital investments mature and automation improves efficiency, margins are projected to recover to 21.8% in FY27.
At the same time, debt-to-equity is estimated to decline from 0.16 in FY25 to 0.1 in FY27, while debt service coverage is projected to improve from 16.1 to 16.8. Very low gearing and interest coverage above 9.0 provide companies with a strong internal cash buffer to fund innovation.
Risks remain concentrated
The US and Europe accounted for 52.9% and 32.8%, respectively, of IT spending in FY25, creating geographical concentration risk. “That said, rapid AI adoption also requires continuous investment in skills to address potential skill obsolescence, concludes Sharan.
Above views are of the author and not of the website kindly read disclaimer
