Recent quarterly performances highlight a bifurcated industry, with smaller competitors expanding sequential revenues nearly five times faster than tier-1 leaders. Although deal bookings appear robust, traditional long-term agreements are increasingly yielding to shorter-cycle artificial intelligence implementations that provide limited forward visibility. Meanwhile, firms face margin compression from pricing renegotiations, with clients pressing for contract discounts during standard renewal cycles. Kotak Institutional Equities anticipates that prolonged headwinds could lead Infosys to temper its FY27 revenue projection down to 1.5–2.5%.
Key points
Smaller software enterprises such as Coforge and Persistent Systems are capturing growth…: Smaller software enterprises such as Coforge and Persistent Systems are capturing growth at a much faster pace than large-cap peers.
Revenue conversions are being heavily delayed by sluggish enterprise approvals, staged de…: Revenue conversions are being heavily delayed by sluggish enterprise approvals, staged deployment schedules, and brief artificial intelligence assignments.
Emerging demand in modernization, cybersecurity, and cloud migration has yet to fully neu…: Emerging demand in modernization, cybersecurity, and cloud migration has yet to fully neutralize fee reductions demanded by clients on traditional deals.
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After surging more than 17% in October, the Nifty IT index appears to have lost momentum, declining nearly 2% so far in November, although the Sensex and Nifty harnessed new-found enthusiasm from foreign funds to climb more than 10% in the run-up to Diwali and its immediate aftermath.
Legacy IT stocks have stagnated despite a precipitous plunge in AI-heavy bets across Asia, putting a question mark over whether earnings concerns at outsourcing firms would continue to keep prices - and valuation multiples - in restraint despite obvious opportunities arising from a sectoral churn.
The September-quarter earnings of Indian IT companies, meanwhile, point to an uneven recovery, with mid-tier players outperforming larger peers while underlying demand conditions remain largely unchanged. Choice Institutional Equities said companies under its coverage reported average sequential revenue growth of around 5.4% for tier-2 players, compared with nearly 1.1% for tier-1 companies.
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Coforge led the mid-tier pack with 10.9% growth, followed by Persistent Systems at…
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