Anand Rathi predicts a better second half for India’s mid-cap IT firms amid ongoing AI-driven price deflation, though full-year growth remains subdued due to geopolitical and market pressures. While some firms thrive on deal flow, others grapple with hyperscaler cost pressures and delayed investments.
Anand Rathi Shares and Stock Brokers expects India’s mid-cap IT services companies to fare better in the second half of FY27, but the brokerage says the sector is still likely to post only restrained revenue growth over the full year as artificial intelligence-driven price deflation, geopolitical disruption and delayed deal ramp-ups continue to bite.
In a sector note, the brokerage said it remained cautiously positive, arguing that firms focused on execution should gain from vendor consolidation and cost-cutting assignments. By contrast, technology-heavy mid-caps may struggle more as hyperscalers push harder on savings while funding large AI and data-centre investments. It added that the first quarter of FY27 was soft, with median constant-currency revenue growth slowing to about 2.1% year on year from 3.8% in the previous quarter, while median margins slipped to 14.7% from 15.9% despite a 3.3% sequential fall in the rupee.
Even so, deal momentum stayed healthy at a few companies. Persistent Systems was the stand-out performer, posting 16.5% constant-currency growth on the back of client mining and a mega deal worth more than $650 million, according to the brokerage. Mphasis reported a fifth straight quarter of more than $400 million in total contract value, while Mastek’s order backlog rose 13.3%. Reuters-style reporting on the note also highlighted that BFSI, or banking, financial services and insurance, remained a relatively dependable source of demand, while the Middle East and discretionary spending areas were weaker because of geopolitical strains.
Pressure was more visible in auto-linked engineering and research work, where KPIT’s revenue fell 3.6% sequentially as weakness at European original equipment makers and programme delays weighed on activity. Business process outsourcing was steadier, led by Firstsource, which delivered 12.3% constant-currency growth and kept its FY27 revenue growth target of 10% to 13%. Anand Rathi said the longer-term opportunity set still includes AI deployment, legacy modernisation, data optimisation, agentic lifecycle management, token optimisation, small language model deployment and sovereign AI, but it expects enterprise software to capture those gains first through FY27, with services seeing a fuller benefit only in FY28.
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