Tier-2 IT firms outpace large-cap peers with strong FY27 outlook despite global headwinds: Report
New Delhi, May 13
Tier-2 IT companies of India continued to outperform larger peers and issued stronger FY27 guidance, even as major Indian IT firms remained cautious due to global macroeconomic challenges, according to a report by Nuvama.
"While Tier-1 companies continue to be impacted by cannibalisation of legacy revenue streams by Gen AI and weak global macro, Tier-2 companies have been able to find pockets of growth and mitigate the impacts to a large extent. We expect this trend to continue and the markets to accordingly reward Tier-2 players with higher valuations than Tier-1," the report stated.
The report said the mid-cap IT segment maintained its momentum in Q4FY26.
"FY27 guidance for most Tier-1 companies was modest, while Tier-2 players continued to outperform and out-guide peers," the report added.
According to the report, growth was supported by healthy deal wins and AI-led transformation programmes. However, "conversion timelines for these deals remained stretched due to macro uncertainty."
Among large-cap IT firms, companies largely sustained momentum despite the impact of furloughs and a cautious global business environment. These firms depended on cost optimisation and vendor consolidation to protect margins.
"Most Tier-1 IT companies provided soft FY27 outlook, reflecting no significant acceleration in FY27 over FY26--perhaps burdened by the continued impact of weak macro, tariffs and Gen AI, with incremental headwinds from the Gulf war," the report noted.
Sector-wise, demand trends remained mixed during the quarter. The BFSI segment stayed healthy despite some furlough impact, while retail remained stable. Healthcare recorded strong growth momentum, but manufacturing continued to remain weak due to tariff-related uncertainty.
The report added that deal wins remained healthy across both large-cap and mid-cap companies. Global peers also maintained spending guidance on cloud and automation.
According to the report, IT stocks are currently reacting more to global AI developments than company-specific fundamentals. It noted that this market behaviour resembles earlier technology cycles seen in 2016-17.
"After the recent sharp correction, we find valuations highly attractive. Reverse DCF also indicates extremely low terminal growth assumptions. We remain positive on the sector from a medium to long-term perspective--in the near term, expect volatility to persist," the report said.
— ANI
Reader Comments
Interesting report from Nuvama. But let's be honest—how long can Tier-2 sustain this? Global macro is a mess with Gulf war and tariffs. And Gen AI is coming for everyone's lunch, big or small. I'm holding my IT stocks but with a lot of caution. The near-term volatility they mention is real.
Tier-2 IT companies are the true story of Indian resilience. 🇮🇳 While TCS and Infosys are busy managing shareholder expectations, these smaller players are actually innovating and grabbing deals. BFSI and healthcare being strong is good news—that's where the real demand is. But manufacturing weak? That's concerning for Make in India.
I appreciate the optimism, but let's not forget the furloughs and stretched conversion timelines. Tier-2 firms are doing well, but if the US or Europe sneezes, we catch a cold. Gen AI is cannibalizing legacy revenue, and that will only accelerate. The report says valuations are attractive, but I think there's more pain ahead before the recovery. Just my 2 paise.
Finally some good news for the Indian IT sector! 🎉 My cousin just joined a Tier-2 firm and the projects they're working on are way more cutting-edge than at the big names. India's tech talent is unmatched—if we keep focusing on AI and automation, we can weather any global storm. Let's go, desi IT! 💪
The report makes a valid point about history repeating—this feels like the 2016-17 cycle all
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