Outcome of key events will determine demand environment in FY25

As we approach the next financial year in a fortnight or so, investors will be busy evaluating the performance of various sectors in FY24. While the consumption-led growth story of India remains strong in the ongoing fiscal year, technology sector has shown a visible slowdown. Moreover, this trend is not just limited to tech startups but even the $250 billion strong IT industry. Most IT firms, which are slated to announce their fourth quarter and annual results from next month, are likely to see growth moderation. While many of them will be posting low single digit growth in their top lines, some may see a downslide. Many mid-tier IT firms are expected to post growth rate in the mid-single digits. The startup ecosystem is likely to perform much worse. Funding in FY24 will not be very different from the previous fiscal year. Though mass layoffs have slowed down towards the second half of the current financial year, most startups are not out of the woods yet. With problems in some big startups playing out, sentiment in the startup ecosystem remains low. Against this backdrop, each stakeholder will be keen to understand what FY25 has in store. However, it is likely to be interesting in many ways.

With the general elections coming up in India, the overall sentiment will hinge on the outcome.

Economic reforms and policy measures to support the startup ecosystem will be keenly watched when the new government comes to power. IT companies, global technology product firms and startups will also be watching the outcome of the upcoming US presidential elections closely. This is more so as the US is the most important market for Indian IT companies. FY24 has so far seen growth moderation because of demand slowdown among American enterprises. High interest rates and conflicts like Russia-Ukraine war have been weighing on demand environment throughout FY24. Therefore, all eyes will be on the outcome of the US presidential elections in November. If the new administration takes strong measures to revive its economy, then that will definitely propel demand for technology-led services. Meanwhile, rating agency ICRA has come up with a report stating that the Indian IT industry is likely to see 3-5 per cent growth in FY25, given the persistent macroeconomic headwinds in key markets of the US and Europe, resulting in lower discretionary IT spends by corporates. The agency expects the operating profit margins for the sector to remain healthy at around 21-22 per cent in FY25. It, however, expects a likely pick-up in the growth momentum once the macroeconomic headwinds subside.

According to the rating agency, the chances of growth revival remain high on the back of strong deal pipeline. In case the US Federal Reserve cuts interest rates three times as proposed, it will have positive impact on pushing IT spend. All in all, the outcome of important events will have profound impact on the performances of several sectors in FY25.