MUMBAI: Mid-tier IT firms are expected to extend their growth lead over large IT services companies in the second quarter of FY27, as faster conversion of large deals and acquisitions help companies such as Persistent Systems and Coforge offset pricing pressure and AI-led deflation affecting the sector.
Brokerages expect large IT firms to report sequential revenue growth ranging from a decline of 1% to growth of 3% in Q2FY27, while mid-tier companies are likely to deliver significantly stronger growth. Persistent Systems and Coforge are expected to lead the pack, supported by continued ramp-up of large contracts, while Coforge is also likely to benefit from the acquisition of Encora.
Kotak expects Persistent Systems to report 7% quarter-on-quarter revenue growth in Q2, followed by Coforge at 4.5% and Mphasis at 3.5%. Among the larger companies, HCLTech is expected to report 2% growth, Infosys 1.1% and TCS 0.5%, while Wipro could see a 1% sequential decline.
Motilal Oswal has a more bullish estimate for some mid-tier companies, forecasting 12% sequential growth for Coforge, 5% for Persistent Systems and 3% each for Mphasis and Hexaware Technologies. The brokerage attributed the stronger outlook for mid-tier companies to an increase in large deal wins and their conversion into revenue.
Persistent Systems, for instance, won a $650 million mega deal from a major US-based technology client in June. Mphasis is also expected to report its strongest growth quarter in 12 quarters, supported by robust business from the banking, financial services and insurance segment.
The divergence comes even as the overall demand environment remains largely unchanged from the previous quarter. Analysts said larger incumbents are facing intense pricing pressure as clients seek substantial discounts, while AI-led productivity gains are reducing the amount of traditional IT work required.
This is making execution, rather than deal wins alone, an increasingly important differentiator. Kotak said deal wins were increasingly helping companies protect their relevance rather than guaranteeing growth, as competitors have become operationally stronger and global peers are growing faster.
“Large-deal conversion into revenues remains a differentiating factor between leaders and laggards,” Kotak analysts said.
The difference is also expected to be visible in total contract value (TCV), with HCLTech, Persistent Systems, Coforge and TCS likely to report stronger deal values, while Infosys, LTIMindtree and Wipro are expected to post softer TCV numbers.
Margins, however, are unlikely to provide a similar advantage to all mid-tier companies. Persistent Systems is expected to see a 40-basis-point sequential margin contraction following wage hikes, while Hexaware and Mphasis could see margins expand by 20-30 basis points. Coforge is expected to maintain stable margins despite absorbing the remaining costs of integrating Encora.
Source: The Financial Express
