New Delhi, Aug 21 The Indian IT sector is likely to register 6-7 per cent growth for FY27 amid some improvement in spending as global uncertainties linger, HSBC Global Investment Research said on Thursday.
In the medium to long term, the report continues to expect 3-5 per cent CAGR growth for the Indian IT industry in constant currency.
“Recent financial results for top US corporates (clients of India IT) reflect a very strong business environment,” the report noted.
There is certainly a component of cyclicality as well.
“We believe many of these corporate clients - despite a healthy financial performance - are unsure about the macro environment given tariff uncertainty and firms holding back investments,” the findings showed.
As more confidence is instilled in the business environment, “we expect some improvement in spending and hence the 6-7% growth outlook for FY27 for Indian IT is still quite possible”.
Nearly two-thirds of revenues for Indian IT are for providing application development, maintenance, and testing services. Over the years, this business continues to see improvement in productivity.
“In the past two to three years, one wave of improvement has materialised post migration to cloud. As legacy high maintenance applications were transformed to micro-services and hosted on cloud, the downstream maintenance work has come down. In recent months, the impact of AI on development cost has impacted revenue growth. We believe this trend is unlikely to change materially in the next two to three years,” said the report.
Indian IT's share of global IT spend is quite significant now (nearly 20 per cent in revenues and 35-40 per cent in volumes) and it's hard to grow at the same pace. Incremental revenue accretion is in sync with past years.
“From a listed large-companies perspective, GCC (Global Capability Centres) impact has been structural and unlikely to reverse. While we are seeing some moderation in growth in GCCs, it's unlikely the cycle will reverse,” the report mentioned.
With US corporates reporting strong results, “we do expect some tailwind to demand as companies need to continue to invest in technology to remain competitive. As such, we believe a 6-7 per cent growth revival in FY27 is still possible,” it added.
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