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Mid-sized IT firms expected to outperform despite persistent sector challenges
A report says medium-sized technology companies may do better than larger companies in the next business quarter.
The quarter is the second quarter of FY27.
Demand for technology services stayed mostly steady.
However, worries about conflicts, the economy and generative artificial intelligence made investors less confident.
The technology index has dropped about 26 per cent in nine months.
Nuvama believes artificial intelligence will create new opportunities for technology companies instead of destroying their business model.
Companies may improve profits by controlling costs and working more efficiently.
Nuvama still expects the technology-services sector to have good prospects over the medium and long term.
Nuvama expects mid-sized IT companies to outperform larger peers in the second quarter of FY27.
Demand remained broadly stable, but business sentiment weakened in September as geopolitical conditions deteriorated.
Geopolitical risks, macroeconomic uncertainty and generative AI concerns have pressured investor sentiment toward the sector.
The IT index has fallen about 26 per cent over the past nine months amid disruption and Gulf-region uncertainty concerns.
Nuvama expects margin improvement from operational efficiencies and cost controls while maintaining a positive medium- to long-term sector outlook.
- Who
- Mid-sized information technology companies, larger IT peers and brokerage Nuvama.
- What
- Nuvama expects mid-sized IT firms to outperform larger peers in the second quarter of FY27, with margins likely to improve.
- Where
- The report was issued from New Delhi and concerns the broader IT services sector.
- When
- The outlook concerns the second quarter of FY27 and the upcoming earnings season; sentiment weakened in September.
- Why
- Mid-sized firms are expected to benefit from stable demand, operational efficiencies and artificial-intelligence-related opportunities, despite geopolitical and macroeconomic risks.
Sector risks and disruption
Resilience and opportunity
Generative AI’s effect
Sector risks and disruption
Platform-led generative AI could disrupt existing IT-services business models and create uncertainty for investors.
Resilience and opportunity
Nuvama believes generative AI is more likely to create larger opportunities for IT-services companies than undermine their business model.
Near-term sector outlook
Sector risks and disruption
Geopolitical tensions, a sluggish macroeconomic backdrop and uncertainty linked to the Gulf region could sustain volatility and weaken sentiment.
Resilience and opportunity
Stable demand, cost management and operational efficiencies are expected to support margins and the sector’s medium- to long-term prospects.
Key facts
- Expected outperformers
- Mid-sized IT companies
- Comparison
- Expected to outperform larger IT peers
- Demand environment
- Broadly stable during the quarter
- IT index performance
- Down about 26 per cent over the past nine months
- Margin outlook
- Improvement expected across most IT companies
- Currency assumption
- Nuvama raised its USD/INR assumption to 95 from 93
- Long-term outlook
- Positive on IT services because of resilient demand and AI-driven transformation opportunities
Quotes
Nuvama
Brokerage that authored the report on the IT services sector
“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.”
thehansindia.com
Sources
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