The Indian information technology (IT) sector is bracing for a mixed performance in the second quarter of fiscal year 2027 (Q2 FY27), according to recent previews from leading brokerages Nirmal Bang Institutional Equities and JM Financial. While large-cap IT companies are anticipated to report subdued constant currency revenue growth, mid-tier and mid-cap firms are expected to continue their outperformance.
Large Caps Face Growth Headwinds
Both Nirmal Bang and JM Financial highlight persistent challenges for large-cap IT players. Demand remains mixed, discretionary spending is still subdued, and increased competition, coupled with AI-led productivity pressures, continues to weigh on the sector. Nirmal Bang projects that large-cap companies under its coverage may see constant currency revenue growth ranging from -1.1% to 1.5% quarter-on-quarter.
JM Financial echoed this sentiment, expecting large-tier firms to post constant currency growth between -0.5% and 2.6% quarter-on-quarter. These firms are still working towards achieving mid-single-digit revenue growth targets for FY27, indicating a slower recovery compared to their smaller counterparts.
Mid-Tier Firms Poised for Outperformance
In contrast, mid-tier Indian IT companies are demonstrating resilience and stronger growth. JM Financial notes that these firms continue to perform well despite macro uncertainty and AI-led disruption, largely driven by robust execution. The brokerage anticipates mid-tier IT revenue, including acquisitions, to grow between 2.7% and 13.0% constant currency quarter-on-quarter, and a significant 5.4% to 47% year-on-year.
Nirmal Bang's analysis for mid-cap players projects even higher growth, ranging from 3.0% to 13.1% quarter-on-quarter. This strong performance is expected to sustain or even widen the roughly 75% valuation premium that mid-tier IT currently holds over large-tier IT.
Margins Stable Amidst Competing Pressures
Analysts expect margins across the IT sector to remain broadly stable. This stability is attributed to operating leverage, internal cost optimization efforts, offshore transitions, and productivity initiatives. However, several headwinds could temper margin expansion, including wage hikes, restructuring costs, higher subcontracting expenses, and investments required for AI readiness. Easing seasonal pressures and a sharp focus on operational efficiencies are expected to bolster margin resilience.
Healthy Deal Momentum, Shorter Contracts
Deal momentum is likely to remain healthy, driven by a consistent pipeline of large transformation, AI-led, cost optimization, and vendor consolidation deals. There's also a growing traction for smaller, shorter-duration AI-led projects, reflecting clients' increasing preference for measurable productivity benefits and flexible contract terms.
Analyst Ratings and Key Stocks
Nirmal Bang has issued 'sell' ratings on several large-cap IT stocks, including TCS, Infosys Ltd, and HCL Tech, citing specific target prices. For mid-caps, it holds a 'hold' rating on companies like Coforge Ltd and Persistent Systems.
Conversely, JM Financial has 'buy' ratings on mid-cap IT firms such as Mphasis and Sagility, while also issuing 'add' ratings for Coforge and Persistent Systems. This divergence in ratings underscores the differing outlooks for various segments within the Indian IT landscape.