Indian IT Sector Outlook for 2025: Resilience, Innovation and Growth Drivers

The Indian IT sector remains a cornerstone of economic growth and innovation. This report examines its performance, key trends, and outlook for 2024-25, combining fundamental and technical analyses. It highlights opportunities in AI, fintech, and digital transformation, offering valuable insights into market trends and future growth potential

The Indian Information Technology (IT) sector continues to be a cornerstone of economic growth and technological advancement. Despite a deceleration in growth to 3.8 per cent in FY24, down from 8.4 per cent in the previous year, the industry has showcased remarkable resilience. Global headwinds, including reduced technology spending and incremental revenues, presented challenges.

However, optimism prevails for FY25, with 66 per cent of CEOs anticipating increased client budgets. The sector's strategic focus on Engineering Research and Development (ER&D), Global Capability Centres (GCCs), and Artificial Intelligence (AI) underscores its adaptability and forward-looking approach.

Domestically, government investments in digital infrastructure and emerging technologies have strengthened the IT sector.Meanwhile, the fintech industry has emerged as a transformative force, democratizing access to financial services. Valued at USD 110 billion in 2024, the fintech sector is projected to grow at a compound annual growth rate (CAGR) of 31 per cent, reaching USD 420 billion by 2029. Together, the IT and fintech industries drive innovation and solidify India’s position as a global technology leader.

Financial Performance
As of December 2024, the Indian IT sector boasts a market capitalisation of ₹43.08 lakh crore. Industry leaders Tata Consultancy Services (TCS) and Infosys continue to dominate the market. TCS accounts for 35.67 per cent of the sector's market cap, showing stable growth in net sales, operating income, and profit after tax (PAT). Infosys, despite slower growth, maintained stable financial performance.

Among Large-Cap players, Oracle Financial Services Software reported a 16 per cent growth in sales, 37 per cent growth in PBIDT, and a 38 per cent rise in PAT. Tech Mahindra stood out with a 144 per cent increase in PAT and 91 per cent growth in PBIDT, albeit with modest sales growth of 3 per cent.

Mid-sized IT companies outperformed their larger counterparts, posting double-digit growth rates. Zen Technologies exhibited triple-digit growth in both sales and profit, while Persistent Systems, Coforge Limited, KPIT Technologies, and Newgen Software delivered robust performance.

In the fintech segment, companies like PB Fintech, Infibeam Avenues, and Zaggle Prepaid Ocean Services reported strong growth in sales and profits, reflecting the sector’s increasing adoption of digital financial solutions.

Key Trends in Q2FY25 Earnings
1. Growth Drivers
• Banking, Financial Services, and Insurance (BFSI) led the growth of Tier 1 IT companies.
• Midcap IT firms witnessed broad-based growth driven by financial services and Hi-Tech, with lower exposure to manufacturing, retail, and healthcare.

2. Margins
• Operating margins remained stable as companies optimised costs through higher utilisation, reduced subcontracting, lower attrition rates, and controlled discretionary spending.
• A material uptick in discretionary spending is expected in FY26, supported by higher transformational deal wins.

3. Order Book (TCV)
• Recovery in BFSI is encouraging; however, the absence of mega deals and weak momentum in non-BFSI sectors may slow growth recovery in H2FY25.

4. Headcount and Utilisation
• Hiring remained muted due to weak transformational deal wins, reflecting cautious growth expectations.
• Utilisation rates are near maximum capacity, leaving limited headroom for margin improvements.

5. Subcontracting Costs
• Optimised levels following recent declines, with further reductions expected to boost margins.

Technical Analysis: CNX IT Index
The CNX IT Index is a key sectoral index on the National Stock Exchange of India, tracking the performance of the top ten IT companies in India. It serves as a benchmark for the IT sector's performance. This index reflects market sentiment for technology stocks, often influenced by global factors like U.S. tech stock trends, forex fluctuations, and global demand for IT services.

Price Trend Overview
• The index exhibited a bullish trend from mid-2023 to mid-2024, marked by higher highs and higher lows.
• A correction phase followed, with the index peaking near 45,960—establishing a critical resistance zone.
• Immediate support lies at 40,150, with a stronger base of around 33,000 providing stability during pullbacks.

Momentum Analysis (RSI)
• The Relative Strength Index (RSI) hovers around 49.47, indicating neutral momentum.
• Previous bullish phases saw RSI consistently above 50, reflecting strong buying interest.
• The current consolidation phase aligns with cautious investor sentiment.

Technical Future Outlook
• The CNX IT Index is positioned between critical support and resistance levels. A breakout above 45,960 could reignite bullish momentum, while a drop below 40,150 may trigger corrections. The 33,000 level remains a long-term safety net.
• The current consolidation phase reflects investor caution amid global uncertainties. However, the longterm outlook remains positive, driven by leadership in AI, cloud computing, and digital transformation services.

Factors Influencing the CNX IT Index
1. Global Trends
• Performance of U.S. tech stocks, NASDAQ trends, and global IT spending influence investor sentiment.
• Forex fluctuations, especially a stronger U.S. dollar, benefit Indian IT companies due to export-driven revenues.

2. Sectoral Dynamics
• Slow growth in major economies, geopolitical uncertainties, and reduced discretionary spending pose risks.
• Adoption of AI and cloud computing services provides long-term growth opportunities.

3. Macroeconomic Environment
• Government policies, including digital transformation initiatives and IT-friendly budgets, bolster sectoral prospects.
• Rising cybersecurity investments and AI-driven projects further support the growth narrative.

Fundamental Outlook
The Indian IT and fintech sectors are poised for sustainedgrowth, driven by supportive government policies, technological innovation, and global competitiveness.

1. Government Support
• The Union Budget 2024-25 allocated ₹1.16 lakh crore for IT and telecom, emphasizing AI, cybersecurity, and digital infrastructure.
• India remains a top offshoring destination, supported by cost efficiencies and a skilled workforce.

2. Emerging Technologies
• Generative AI is projected to account for 60 per cent of hyperscale server spending.
• Cloud adoption could create 14 million jobs and boost GDP significantly by 2026.

3. Fintech Growth
• With a forecasted valuation of USD 420 billion by 2029, fintech innovations in payments, lending, and product delivery continue to democratize financial services.
• Removal of the Angel Tax has further incentivized start-up growth, attracting USD 31 billion in investments over the last decade.

4. Economic Impact
• Both sectors are key drivers of India’s digitaltransformation, supporting the vision of a USD 5 trillion economy

Conclusion
The Indian IT sector is a testament to resilience and innovation, navigating global challenges while capitalising on transformative opportunities. The robust growth in AI, cloud computing, and digital transformation underscores its strategic importance in shaping India’s digital future. Complemented by the booming fintech industry, the sector is poised to play a pivotal role in advancing the nation’s economy toward its ambitious USD 5 trillion vision. While near-term hurdles like cautious global spending and muted hiring trends persist, the long-term outlook remains promising.

With strong government support, technological advancements, and a skilled workforce, the IT and fintech industries are well-positioned to sustain their leadership on the global stage. For investors and stakeholders, the focus on long-term growth trends offers a pathway to capitalise on the sector's potential as it evolves into a cornerstone of economic and technological progress.