Mid-sized IT firms set to outperform larger peers in Q2 FY27: Report

Mid-sized IT firms poised to outperform despite challenges: Report

New Delhi, Oct 2

According to a report by leading brokerage Nuvama, the overall demand environment remained broadly stable during the quarter, although business sentiment weakened in September amid a deterioration in geopolitical conditions.

The brokerage has expected management to highlight concerns related to global geopolitical risks, a sluggish macroeconomic backdrop and the evolving influence of Gen-AI during the upcoming earnings season.

These factors have weighed on investor sentiment toward the sector in recent months, it said.

Moreover, the IT index has fallen about 26 per cent over the past nine months because of concerns over platform-led Gen-AI disruption and uncertainties linked to developments in the Gulf region.

However, the brokerage has maintained a constructive outlook on the IT services industry, saying that advances in Gen-AI are more likely to create new opportunities than undermine the sector's business model.

"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 brokerage said.

The report also anticipates margin improvement across most IT companies, supported by operational efficiencies and cost management measures.

While some companies may revise their revenue guidance, Nuvama expects margin guidance to remain broadly unchanged.

In addition, the brokerage has raised its USD/INR assumption to 95 from 93 and rolled forward its valuation framework using average FY28-FY29 price-to-earnings multiples.

While warning that near-term volatility could persist, Nuvama said it remains positive on the medium to long-term prospects of the IT services sector, citing resilient demand trends and emerging opportunities linked to artificial intelligence-driven transformation initiatives.

— IANS