A Mixed 2024 For Indian IT Industry; Growth Improving Towards H2

The Indian IT industry has had a mixed year in 2024 with things moving for better towards the second half. The year started with a slowdown in overall demand. Technology spending by global enterprises didn’t see any improvement in the beginning as the US economy continued to remain under inflationary pressure. In the first two quarters of 2024, status quo in the demand environment continued with subdued performance by most IT firms. However, things have started improving towards the second half the year.

With the US economy showing signs of improvement, some sectors have increased spend on technology. This has been prominent in the BFSI (banking, financial services and insurance) sector. During the July-September period, promoters of all large firms provided positive commentary on the growth prospect of the financial services sector. This bodes well for the Indian IT services and BPM industry. During the year, growth has been uneven across the industry. Companies with high digital revenue pie have seen growth slowdown continuing.

Meanwhile, those with holistic offerings across the portfolio led the race. Incidentally, most of the deals came in the cost optimisation space. We are on the verge of approaching the new year but this has not changed much. Most large deals continued to with cost savings, though some digital transformation has crept in towards the end of the year. However, the theme in 2024 predominantly hovered around cost saving with very little spend going to discretionary areas.

It has led to a situation where companies faced margin pressure throughout the year. In the first half, the industry saw headcount reduction by many firms as many IT firms tried to reduce wage costs. In 2024, growth of mid-tier firms saw distinct divergence. While some performed well, many were not able to maintain their superlative performance this year. The year also saw many leadership changes on the top with new CEOs taking over across several firms. However, overall growth of mid-tier firms fell though it was higher than their larger peers.

Similarly, engineering services companies saw growth falling down after two years of fast growth. Many ER&D firms faced client-specific issues, leading to fall in their growth rates. This was particularly so with companies having larger exposure to automotive sector face slowdown pangs towards the second half. Despite such slowdown, engineering services remained one of the growth spots in IT industry.

The year saw hyper activity in the mergers and acquisition space. With valuation of target companies coming down, many stake buys happened throughout the year. Both large and mid-tier IT firms spent billions in acquiring firms in the US and Europe in order to build capabilities apart from increasing market access. With 2025 round the corner, Indian IT industry will take cue from the policies of the Trump Administration. More importantly, the geopolitical situation will determine the overall demand environment going ahead.