Indian IT Sector to See Strong Growth with Digital Transformation and AI Leading the Way
The Indian IT sector is set for strong earnings growth in the coming years. According to a recent industry analysis report by Nirmal Bang Equities, the sector is projected to achieve a double-digit Earnings Per Share (EPS) Compound Annual Growth Rate (CAGR) of 17.5% from FY24 to FY27.
Key Drivers of Growth
This growth is expected to be driven by several key factors:
- Significant deal wins
- Stabilizing margins
- Sustained demand for Digital Transformation (DT) services, particularly in cloud computing, cybersecurity, and Generative AI (GenAI)
As of the first quarter of FY25, the total deal wins for the sector stood at approximately USD 100.7 billion, marking a 16.6% year-on-year increase, despite broader market downturns.
Revenue Projections
The Nifty IT index is projected to grow at a CAGR of 8.5% over FY24-27, slightly outperforming the market’s estimated USD CAGR of around 8%. However, this rate is expected to be lower than the 11% CAGR achieved between FY21-24, which was characterized by a sharp increase in discretionary spending.
Future Outlook
Looking ahead, the IT sector is expected to see faster EPS growth, supported by several margin expansion initiatives, including:
- Pyramid rationalization
- Reduced subcontractor expenses
- Higher utilization rates
- Organizational restructuring
Notably, CEO replacements in six out of the 11 companies covered under the report analysis are expected to bring fresh strategic perspectives, potentially driving improved performance. GenAI is also expected to play a crucial role in this growth and is poised to drive the next phase of growth in digital transformation deals.
Doubts Revealed
IT Sector -: The IT sector refers to companies that work with technology, like computers and software, to help other businesses.
Digital Transformation -: Digital transformation means using new technology to improve how businesses work and serve their customers.
AI -: AI stands for Artificial Intelligence, which is when computers can do tasks that usually need human intelligence, like understanding language or recognizing pictures.
CAGR -: CAGR stands for Compound Annual Growth Rate. It shows how much something, like earnings, grows each year over a period of time.
EPS -: EPS stands for Earnings Per Share. It tells us how much money a company makes for each share of its stock.
FY24 to FY27 -: FY24 to FY27 means the financial years from 2024 to 2027. A financial year is a year used for accounting and tax purposes.
Cloud Computing -: Cloud computing is using the internet to store and access data and programs instead of using a computer’s hard drive.
Cybersecurity -: Cybersecurity means protecting computers and networks from bad people who want to steal information or cause harm.
Generative AI -: Generative AI is a type of artificial intelligence that can create new content, like writing stories or making pictures.
Nifty IT index -: The Nifty IT index is a group of top IT companies in India, and it shows how well these companies are doing in the stock market.
Margin Expansion -: Margin expansion means a company is making more profit from its sales by reducing costs or increasing prices.
CEO -: CEO stands for Chief Executive Officer. This person is the boss of a company and makes important decisions.
