New Delhi: Tier-2 IT companies are expected to outperform their larger peers in the second quarter of FY27, even as the sector contends with geopolitical tensions, a weak macroeconomic environment and the growing impact of generative artificial intelligence, according to a report by brokerage Nuvama.
The report, published on October 2, said the overall demand environment remained largely stable during the quarter but weakened in September amid rising geopolitical uncertainties. Nuvama expects management commentary during the earnings season to dwell on the challenges arising from geopolitics, the soft macro backdrop and the potential impact of GenAI.
Estimates for the mid-tier pack
The brokerage estimates that Persistent Systems will lead the tier-2 segment with 6.5 per cent quarter-on-quarter growth in constant currency, followed by Mphasis at 3.1 per cent and Hexaware at 2.5 per cent. Margins are expected to improve across most IT companies, Nuvama said, adding that several firms could revise their revenue guidance while margin guidance is likely to remain unchanged.
The sector has been under pressure on the bourses: the IT index has declined 26 per cent over the past nine months, mainly due to concerns around platform-led GenAI disruption and uncertainties related to the Gulf region.
Long-term view stays positive
Despite the near-term caution, Nuvama maintained a positive view on IT services over the medium to long term. "We continue to believe the IT Services model is here to stay and the Gen-AI disruption would only lead to bigger opportunities for them," the report said.
Nuvama also revised its USD/INR assumption to 95 from 93 and rolled forward its valuations based on average FY28-29 price-to-earnings multiples, while cautioning that near-term volatility is likely to continue.
Sources:
- Tier-2 IT firms likely to lead Q2FY27 growth despite Gen-AI, geopolitical challenges: Report — The Tribune (ANI)
The report, published on October 2, said the overall demand environment remained largely stable during the quarter but weakened in September amid rising geopolitical uncertainties. Nuvama expects management commentary during the earnings season to dwell on the challenges arising from geopolitics, the soft macro backdrop and the potential impact of GenAI.
Estimates for the mid-tier pack
The brokerage estimates that Persistent Systems will lead the tier-2 segment with 6.5 per cent quarter-on-quarter growth in constant currency, followed by Mphasis at 3.1 per cent and Hexaware at 2.5 per cent. Margins are expected to improve across most IT companies, Nuvama said, adding that several firms could revise their revenue guidance while margin guidance is likely to remain unchanged.
The sector has been under pressure on the bourses: the IT index has declined 26 per cent over the past nine months, mainly due to concerns around platform-led GenAI disruption and uncertainties related to the Gulf region.
Long-term view stays positive
Despite the near-term caution, Nuvama maintained a positive view on IT services over the medium to long term. "We continue to believe the IT Services model is here to stay and the Gen-AI disruption would only lead to bigger opportunities for them," the report said.
Nuvama also revised its USD/INR assumption to 95 from 93 and rolled forward its valuations based on average FY28-29 price-to-earnings multiples, while cautioning that near-term volatility is likely to continue.
Sources:
- Tier-2 IT firms likely to lead Q2FY27 growth despite Gen-AI, geopolitical challenges: Report — The Tribune (ANI)
