India's mid-cap IT sector continues to outshine its large-cap counterparts, driven by sharper AI adoption, BFSI momentum, and robust deal pipelines, signaling strong medium-term growth prospects.
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Anand Rathi Report
In Q1 FY26, the Indian IT sector delivered a soft performance, with tier-2 firms like Coforge outperforming large players in both revenue growth and execution. Largecap companies such as TCS, Infosys, and HCLTech were impacted by macroeconomic uncertainty that delayed discretionary spending, leading to muted growth.
However, strong deal wins especially at Infosys and HCLTech indicates improvement in demand, prompting both firms to raise the lower end of their FY26 revenue guidance.
Tier-II players meanwhile maintained their strong growth outlooks. GenAI, cloud, and digital transformation remained key drivers of interest but monetization continues to lag as clients focus on pilots rather than scaled adoption. The absence of a new tech cycle further added to the deflationary pressure on legacy service lines.
Margins contracted across the board. Tier-1 companies were hit by wage hikes, low utilization, and upfront GenAI investments, while Tier-2 firms saw sharper declines due to pricing and volume softness. Despite margin pressures, firms continue to invest heavily in AI capabilities, platforms, and talent. Sector-wise, BFSI, telecom, and healthcare showed resilience while consumer and manufacturing were weak due to tariff-related concerns.
Global peers like Accenture and Cognizant raising guidance has added to optimism for a gradual H2 FY26 recovery led by GenAIdriven tech spending.
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