India’s IT sector is set to report its Q1 earnings starting with Tata Consultancy Services on July 9. Large-cap tech companies continue to struggle with weak discretionary spending and growing pricing pressure from artificial intelligence-led productivity gains. But midcap IT firms such as Coforge and Mphasis have continued to outperform both large-cap IT stocks and the Nifty IT index.
Brokerage reports suggest that while the overall demand environment remains subdued, the growth gap between large-cap and mid-tier IT companies is likely to continue.
Nomura on IT companies
Nomura said that Indian IT companies are currently facing a “perfect storm” of macro uncertainty and AI-led pricing pressure that is suppressing near-term growth. The brokerage expects another subdued earnings season, with weak quarterly growth across most large-cap companies, but expects mid-cap IT firms to continue to outperform.
While Nomura has reduced target multiples across much of its coverage to reflect slower growth, it remains optimistic about the industry’s long-term prospects, saying that AI is more likely to expand the total addressable market for IT services than shrink it.
Among midcaps, Nomura’s top pick is Coforge. They also have a Mphasis also a Buy rating. The brokerage expects Coforge’s stronger growth profile to continue to support relative outperformance even as the broader sector faces earnings pressure.
Kotak Institutional Equities on IT stocks
Despite the cautious sector outlook, Kotak continues to favour mid-tier “challenger” companies over traditional large-cap IT stocks.
Kotak expects the June quarter to be weak for the IT services sector despite it being seasonally strong. The brokerage cited the impact of the West Asia conflict, increased productivity pass-throughs in managed services contracts and increasing AI-led pricing deflation as key reasons behind flat growth.
The brokerage believes the rapid improvement in frontier AI models is forcing companies to pass productivity gains to clients faster than previously anticipated. As a result, it has cut FY27-29 revenue estimates by around 0-1% and reduced fair values by as much as 21% across its coverage universe.
Its preferred picks among mid-tier IT companies are Coforge, Hexaware Technologies, and Indegene, while TCS remains its preferred large-cap stock because of attractive valuations.
Motilal Oswal on midcap IT stocks
Motilal Oswal expects midcap IT companies to once again outperform their larger counterparts this quarter.
The brokerage believes macro uncertainty, AI-related productivity gains, and geopolitical concerns will continue to delay discretionary technology spending, resulting in another soft quarter for the sector.
According to Motilal Oswal, large-cap companies are expected to report constant-currency growth ranging from -1.5% to 2%, whereas mid-cap firms could deliver -1% to 4.8%, primarily driven by the continued ramp-up of large deals.
Within the mid-cap universe, the brokerage expects Hexaware Technologies to post the strongest sequential growth at about 4.8%, followed by Persistent Systems at around 3%, while Mphasis is expected to grow about 2%. Coforge, however, is expected to remain broadly flat during the quarter.
JM Financial picks Mphasis among midcap IT stocks
JM Financial also expects concerns around AI-led pricing pressure and macro uncertainty to take over the seasonally strong June quarter.
The brokerage estimates constant-currency revenue growth of 0.3% to 5% for major mid-tier IT companies, led by Hexaware Technologies, while expecting Mphasis to deliver a healthy quarter and maintain its FY27 guidance.
JM Financial has identified Mphasis as its preferred mid-tier stock, unlike several brokerages that broadly favour the challenger segment. It expects Mphasis to report 2.3% sequential constant-currency revenue growth.
The brokerage has retained its Buy rating on Mphasis while also maintaining an Add rating on Coforge, although it remains cautious on the broader IT sector until earnings downgrades begin stabilising.
Midcap IT: What’s the expert view?
Reaffirming the midcap IT story, Ajit Mishra, Senior Vice President of Research at Religare Broking sai that one can selectively make investments in select midcap IT counters, but the time horizon should be long-term, as it may continue to see the volatile swings in the coming months. “The management commentary on the growth prospects and its reflection in the numbers would be critical for a sustained outperformance or at least participation in the market recovery,” he added.
On the technical front, Vipin Kumar, who is the Assistant Vice President of Research at Globe Capital Market, said that last week, “Nifty IT index settled with a green ‘Hammer’ candlestick around the price support zone of 26,000-25,500 levels on its weekly chart, which signals a probable relief rally. This might take the index up to 29,000 levels in the short-term.” However, he highlighted that the overall chart structure remains negative, with multiple resistances on the higher side.
Conclusion
All in all, analysts across the brokerage houses believe the growth gap between large-cap and mid-tier IT companies is unlikely to narrow anytime soon. The broader IT demand environment remains weak, with AI-led productivity gains and macro uncertainty continuing to pressure revenue growth. All eyes would be on the management commentary from IT majors for a clear assessment of the demand environment ahead.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.
