Stories
Tier-2 IT Firms to Outperform in Q2 FY27 Despite Gen-AI, Geopolitical Risks: Nuvama
- •Nuvama predicts Tier-2 IT companies will lead Q2 FY27 performance, surpassing larger players despite challenges.
- •The overall demand environment remained stable but weakened in September due to rising geopolitical uncertainties.
- •Management commentary during earnings season is expected to highlight geopolitical, macroeconomic, and Gen-AI impacts.
- •Nuvama maintains a positive long-term outlook on the IT services sector, viewing Gen-AI as a growth opportunity.
- •Persistent Systems, Mphasis, and Hexaware are projected to lead the Tier-2 segment in QoQ growth.
Key Questions Answered
Tier-2 IT companies are expected to outperform larger industry players in Q2 FY27, with Persistent Systems estimated to lead the segment with 6.5 percent quarter-on-quarter constant currency growth. Mphasis is projected to follow at 3.1 percent and Hexaware at 2.5 percent.
The IT index has declined by 26 percent over the past nine months. This downturn is primarily attributed to concerns surrounding platform-led generative AI disruption and uncertainties related to the Gulf region.
Nuvama has revised its USD/INR assumption to 95 from 93 and rolled forward its valuations based on average FY28-29 price-to-earnings multiples. The brokerage anticipates that near-term volatility will likely continue while maintaining a positive medium-to-long term outlook on the sector.
