Mid-sized information technology companies are projected to outperform their larger counterparts in the second quarter of FY27, despite ongoing challenges such as geopolitical tensions, macroeconomic uncertainties, and the impact of generative artificial intelligence (Gen-AI), a recent brokerage report revealed.
The report from leading brokerage Nuvama highlighted that overall demand remained broadly stable in the quarter, although business sentiment weakened in September due to worsening geopolitical conditions.
Nuvama anticipates that management teams will emphasize concerns around global geopolitical risks, a sluggish macroeconomic environment, and the evolving effects of Gen-AI in the upcoming earnings season.
These factors have negatively affected investor sentiment towards the IT sector in recent months.
Over the past nine months, the IT index has declined by approximately 26 percent amid worries about platform-led Gen-AI disruptions and uncertainties related to developments in the Gulf region.
this, Nuvama retains a constructive outlook on the IT services industry, suggesting that advancements in Gen-AI are more likely to present new opportunities rather than threaten the sector’s existing business model.
The brokerage stated, “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.”
Furthermore, the report expects margin improvements across most IT companies, driven by operational efficiencies and effective cost management.
While some firms might revise their revenue guidance, Nuvama expects margin forecasts to remain largely stable.
The brokerage also raised its USD/INR exchange rate assumption to 95 from 93 and updated its valuation framework to reflect average price-to-earnings multiples for FY28-FY29.
While near-term volatility might continue, Nuvama remains optimistic about the medium- to long-term prospects of the IT services sector, citing resilient demand trends and new opportunities emerging from AI-driven transformation initiatives.