Mid-cap outperform larger peers yet again

Coforge, Persistent Systems and Hexaware Technologies Ltd reported revenue growth of 31.5%, 18.8%, and 13.7%, respectively in the last fiscal year. To be sure, Hexaware follows a January-December financial year while other homegrown IT services companies follow an April-March financial calendar. Meanwhile, Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies grew 3.78%, 3.85% and 4.3% respectively, and Wipro Ltd’s revenue fell 2.72%.

Historically, all these companies would bid for different projects but over the last 12 months, the rise of Gen AI has enabled smaller companies to compete with their larger peers.

‘Deflationary tech’

“Inherently, new technologies tend to be deflationary, a headwind for incumbents and an opportunity for challengers. Additionally, the difference in technology expertise (skill + scale) narrows down in new technologies, aiding challengers. It will be difficult for incumbents to aggressively incorporate Gen AI into their services portfolios, given the larger size relative to challengers who can better afford to cannibalize existing revenues to get a bigger portion of the pie from incumbents,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 2 May.

Stable leaderships have helped too. Coforge, Persistent and Hexaware have each had chief executive officers (CEOs) who have been in their positions for more than five years.

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Srikrishna Ramakarthikeyan took over as CEO of Hexaware in August 2014, whereas Sandeep Kalra took over as Persistent Systems’ CEO in October 2020. Both were former HCLTech employees who had been in the company more than a decade. Sudhir Singh took over as Coforge CEO in May 2017. He had spent a little more than nine years at Infosys.

This is in contrast to TCS, Wipro and Tech Mahindra, each of which have new CEOs with less than two years of experience at the helm.

Leadership

K. Krithivasan took over as TCS CEO in June 2023 whereas Mohit Joshi joined Tech Mahindra as its CEO in December 2023. Srinivas Pallia was the latest entrant to the CEO club after he took over Wipro’s reins in April last year.

This suggests that work experience in a larger IT services firm may have helped the chief executives of smaller IT outsourcers grow faster.

“We forecast strong 20.8% organic c/c revenue growth in FY26, an acceleration from 16.4% in FY25E on the back of (1) strong broad-based growth momentum across geos, verticals and services, (2) healthy increase in 12-month order backlog, up 47.7% yoy and 10.3% qoq buoyed by the Sabre deal; (3) strong deal win trajectory and pipeline and (4) revenue synergies from Cigniti through cross-selling of Coforge’s services to Cigniti’s F-500 accounts. We expect Coforge to be the industry leader of revenue growth in FY2026 on an organic basis,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna, in a note dated 6 May.

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Smaller peer Persistent Systems is expected to keep its momentum going.

Persistence

“PSYS’(Persistent Systems) unique value proposition and its strong play around regulated verticals are keeping it more resilient in this adverse environment. Additionally, the investments around hiring senior leadership team within key verticals have been instrumental in fueling client mining/hunting activities and closing large strategic deals,” said Prabhudas Lilladher analysts Pritesh Thakkar and Sujay Chavan in a note dated 24 April.

While Coforge expects a strong FY26 on the back of its deal wins and pipeline, L&T Technology Services Ltd’s management expects FY26 to be better than FY25, much like TCS.

For now, mid-cap IT services companies including LTIMindtree Ltd, Mphasis Ltd, Coforge Ltd, Persistent Systems Ltd, Hexaware Technologies Ltd, and L&T Technology Services Ltd have outperformed their larger peers.

The mid-caps reported yearly revenue growth between 4.43% and 29.15% whereas the large caps reported an at best growth of 4.3% on a yearly basis, lower than the worst-faring mid-cap company.

Divergence

This divergence in performance signals that smaller IT services companies have weathered the economic uncertainty much better than their larger peers.

Coforge was Indian IT’s best performer last year, as revenue flooded in from Cigniti, the Hyderabad-based engineering services company that it bought last May in its biggest acquisition. Coforge also became the only company among its peers to sign a mega deal, those valued at over $1 billion, last year. It ended March 2025 with a full-year revenue of $1.45 billion.

The Noida-headquartered company also inked a $1.56 billion, 13-year deal with Sabre, a Texas-based travel technology company, in March.

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The mega deal and the Cigniti acquisition propelled Coforge to become India’s eighth-largest IT services company. Much like TCS, Coforge’s chief executive said that FY26 was expected to be a ‘strong growth year’ for the company on the back of a strong order pipeline, when he addressed analysts in the company’s post-earnings call on Monday.

At least one executive said that IT companies would need a steady pipeline of deals to withstand the macroeconomic uncertainty.

‘Feet dragging’

“We have not seen any cancellations, we are seeing a certain amount of feet dragging in terms of deal closures. I do believe personally that in our industry, we will need more pipeline to be able to do the bookings whether it is Persistent or somebody else. And so we are at it, and we may do investments in sales and marketing and in our go-to-market accordingly,” said Sandeep Kalra, chief executive of Persistent Systems, as part of the company’s post-earnings analyst call on 24 April.

A key sore point for the Big Five was its slim order book. TCS and Wipro started FY26 with an order book which was smaller than the one they had at the start of FY25, while Infosys clocked fewer large deals in FY25, implying weaker revenue growth in the year ahead.

In contrast, Coforge reported $2.1 billion in orders during the January-March period, its strongest order book in a quarter, whereas LTIMindtree reported a second consecutive quarter of orders exceeding $1.5 billion in contract value.

Also read | Coforge has won a mega tech deal, but can Sabre service the contract?

However, the questions don’t end here. Experts said that mid-caps are eating into the revenue of the large caps.

“The Tier-2 set have been taking away market share from the Tier-1 set due to better execution and due to their smaller size. And unlike in the past cycles, they have performed better than the Tier-1 largely due to better management teams,” said Girish Pai, head of equity research for Bank of Baroda Capital Markets, in a note dated 29 April.

Smaller teams

A third analyst said that mid-caps also worked with smaller teams and a more specialized focus that enabled them to have a deeper understanding of the client and access to more work.

“Mid-caps have smaller teams which work quicker compared with large teams and this makes it easier for them to respond to client requests,” said a Mumbai-based analyst on condition of anonymity.

A fourth analyst partly agreed with the assertion that mid-caps can eat the lunch of their larger peers, adding that smaller IT services companies can respond to clients’ needs quicker when the latter want to increase their non-essential tech spending.

“Discretionary demand changes over time and at times, it’s small when a new opportunity like digital or AI comes along. Slowly, the projects become bigger and in the initial stages of such discretionary spend scenarios where project sizes are small (where we are now) some mid caps, who have timely built skills and capabilities in that space can be more nimble in responding to those needs,” said Ashutosh Sharma, research director at Forrester.

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