Indian IT sector’s revenue growth is expected to come at a tepid 3-5 per cent in FY25, a domestic rating agency said on Monday.

The sector’s hiring will “remain muted” in the near-term until the growth momentum picks up, Icra Ratings said.

However, the companies’ profitability is expected to be resilient amid concerns on topline growth, it said, adding the operating profit margins for the USD 250 billion Indian IT sector will come at a healthy 21-22 per cent in FY25.

The agency said in the first nine months of the ongoing 2023-24, the industry has posted a revenue growth of just 2 per cent, as against 3-5 per cent it had estimated for the sector in the past.

The topline growth for the first nine months of FY23 had stood at a healthy 9.2 per cent.

Persistent macroeconomic headwinds in key markets of the US and Europe, which has led to lower discretionary IT spends by corporate has led to expectations of tepid revenue growth even in FY25, its sector head Deepak Jotwani said.

He, however, added that critical spending and cost optimisation deals continue to gain traction, supporting the growth prospects for the Indian IT services companies to “some extent”.

The agency expects pick-up in the growth momentum once the macroeconomic headwinds subside on strong order books and deal pipeline of most companies and tech spends becoming far more integral to overall capital allocation for corporate after the pandemic.

While it expects hiring activity to remain muted, the agency said the attrition levels will stabilise over the near term, inching closer to the long-term average of 12-13 per cent, as overall slowdown in growth momentum and strong hiring in the previous fiscal has corrected the demand-supply mismatch witnessed earlier.

The agency maintained its stable outlook on the sector for the new fiscal.