TCS, Infosys face soft Q2 as mid-tier IT firms pull ahead
- Large Indian IT firms may post -1.1% to 1.5% quarterly growth, Nirmal Bang says.
- Mid-cap IT firms may grow 3.0% to 13.1% quarter on quarter.
- JM Financial expects double-digit annual growth for Indian BPO companies.
- Nirmal Bang rates TCS, Infosys, HCLTech and Wipro ‘sell’.
MUMBAI, INDIA — India’s largest IT services companies, including Tata Consultancy Services (TCS) and Infosys, are expected to post subdued revenue growth for the July-to-September quarter, while mid-tier rivals keep outperforming.
Indian BPO companies look set for another decent quarter, with double-digit constant currency revenue growth year on year.
Large caps lag
Nirmal Bang Institutional Equities expects the large-cap companies it covers to post constant currency revenue growth of -1.1% to 1.5% quarter on quarter, against 3.0% to 13.1% for mid-cap players, Business Today reported.
JM Financial expects mid-tier IT revenue, including acquisitions, to grow 2.7% to 13.0% quarter on quarter, against -0.5% to 2.6% for large-tier firms.
Both brokerages said demand for large caps remains mixed, discretionary spending is still subdued, and AI-led productivity pressure and competition continue to weigh on the sector.
Clients increasingly prefer shorter-duration contracts and want measurable productivity benefits, they said.
Support is coming from banking, financial services and insurance (BFSI), cost optimization, vendor consolidation and AI-led engagements.
Margins hold, deals keep coming
Nirmal Bang said margins should stay broadly stable, helped by operating leverage, internal cost optimization, offshore transition and productivity programs.
Wage hikes, restructuring costs, higher subcontracting and spending on AI readiness remain headwinds.
Deal momentum is likely to stay healthy, led by large transformation, AI-led, cost optimization and vendor consolidation deals, while smaller and shorter AI projects gain traction.
JM Financial said the roughly 75% valuation premium of mid-tier IT over large-tier IT is likely to sustain or widen.
It said it sees no meaningful improvement in large-tier IT demand and has marginally revised its earnings estimates for most companies to reflect exchange rate changes.
Tata Technologies could report 4.4% constant currency quarter-on-quarter growth in services, driven by the ramp-up of its Tenneco deal, JM Financial said.
Nirmal Bang has “sell” ratings on TCS, Infosys, HCLTech, Wipro, LTM and Tech Mahindra.
Among BPO and engineering names, JM Financial prefers Sagility and Firstsource Solutions, both rated “buy,” along with Mphasis.
For buyers, the shift toward shorter, AI-led deals gives clients leverage at renewal, as providers compete on measurable productivity gains rather than headcount.
Clients renewing managed services or offshore outsourcing contracts can press for productivity commitments written into the agreement.
Firms comparing providers can benchmark them against the top BPO companies worldwide list.
Related news
- AI reshapes, not shrinks, India outsourcing: ING · 24 Sep
- AI forces India’s $315Bn IT sector to reshape · 28 Aug
- TCS scales AI revenue to $2.6Bn as growth holds · 14 Jul
Disclosure: Outsource Accelerator uses AI tools in the backend of its editorial workflow. Every article is reviewed and verified by a human editor before publication.
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