Growth story of Indian IT will continue: Icra

Bengaluru: Growth story of Indian IT industry is likely to continue on the back of robust demand environment, rating agency ICRA said on Tuesday.

In a report, ICRA said Indian IT services companies are expected to grow by 9-12 per cent in dollar revenue terms in FY22.

In the current financial year, all large IT services companies have guided for a double-digit growth in revenues, while many mid-tier companies are likely to grow in high teens.

As per the rating agency, the demand is mostly driven by accelerated and robust demand for technologies from enterprises globally. Growth rate will also receive some support due to the low base effect.

"Growth momentum for the industry is likely to sustain over the near term, this has been supported by uptick in all key verticals such as BFSI, telecom, manufacturing, retail and distribution. Notwithstanding some moderation in FY2022 and FY2023, operating margins are expected to remain healthy," said the report.

However, the report pointed out that attrition levels will remain a point of concern for the Indian IT industry. Indian IT services companies are reeling under high attrition for the last three quarters. For the quarter ended September, many IT firms have witnessed more than 20 per cent attrition rate.

Infosys saw its attrition rising by 620 basis points over the first quarter to 20.1 per cent. Similarly, Wipro's attrition rate reached 20.5 per cent in Q2 of FY22, up from 15.5 per cent in Q1. For HCL Technologies, attrition rate touched an all-time high rate of 15.7 per cent, up from 11.8 per cent in the first quarter.

"Concerns have emanated from elevated attrition levels for the industry due to strong demand for digital technologies lack of adequate skilled manpower to service the same. Companies are reskilling employees to overcome this challenge. Hiring by IT companies is at an all-time high buoyed by strong demand and net addition over past four quarters has been increasing exponentially," said Deepak Jotwani, assistant vice president and Sector Head, ICRA.

With regard to the share of fixed price contracts in the overall portfolio of IT companies, the report noted that Indian IT firms are focussed on more fixed price contracts as that ensures better visibility on earnings. The share of fixed price contracts has remained between 60-65 per cent over the past three years, it said.

"Fixed price contracts allow for higher deployment of offshore resources where the salaries are 60-70 per cent lower coupled with better utilisation of manpower across such projects and deployment of automation," the report added.