Synopsis : Brokerages remain cautious on large-cap IT due to AI-led pricing pressure and weak discretionary spending, but midcap IT companies continue to outperform. Here's why analysts are bullish on Coforge and Mphasis despite a challenging demand environment.
India's IT sector is entering another crucial earnings season, with TCS kicking things off on July 9. While the broader IT industry continues to battle weak global demand, delayed discretionary spending, and AI-driven pricing pressure, analysts believe the real opportunity lies in midcap IT companies.
Several leading brokerages now prefer Coforge and Mphasis over many large-cap peers, citing stronger execution, healthier deal pipelines, and superior growth visibility.
Large-Cap IT Still Facing Headwinds
According to multiple brokerage reports, the overall demand environment remains weak.
Key challenges include:
- Weak discretionary technology spending
- Macro uncertainty across global markets
- AI-driven productivity gains leading to pricing pressure
- Delayed enterprise decision-making
- Soft revenue growth expectations
Although long-term demand for IT services remains intact, analysts expect another subdued earnings season for large-cap players.
Why Midcap IT Is Outperforming
Unlike larger peers, midcap IT companies continue to benefit from:
- Faster execution of large deals
- Better niche capabilities
- Higher growth visibility
- Greater agility in client acquisition
Brokerages believe this growth gap between large-cap and midcap IT is likely to continue over the coming quarters.
Nomura's View
Nomura believes Indian IT is currently facing a "perfect storm" of macro uncertainty and AI-led pricing pressure.
However, the brokerage remains optimistic on the long-term AI opportunity, believing AI will expand the overall IT services market rather than shrink it.
Top Picks:
- Coforge — Buy
- Mphasis — Buy
Nomura expects Coforge to continue delivering stronger relative growth than most peers.
Kotak Institutional Equities
Kotak expects the June quarter to remain weak despite being seasonally strong.
Major concerns include:
- AI-led pricing deflation
- West Asia geopolitical uncertainty
- Productivity pass-through in managed services
Among mid-tier companies, Kotak prefers:
- Coforge
- Hexaware Technologies
- Indegene
Among large caps, TCS remains its preferred pick due to attractive valuations.
Motilal Oswal's Outlook
Motilal Oswal expects midcap IT companies to outperform once again.
Expected constant currency growth:
- Hexaware: ~4.8%
- Persistent: ~3%
- Mphasis: ~2%
- Coforge: Flat sequentially
The brokerage believes deal ramp-ups continue supporting midcap growth despite weak sector sentiment.
JM Financial Picks Mphasis
JM Financial expects:
- Mphasis to report healthy quarterly growth
- Management to maintain FY27 guidance
- AI-related pricing pressure to remain a near-term challenge
The brokerage has:
- Buy on Mphasis
- Add on Coforge
Expert View
According to Religare Broking, investors can selectively accumulate quality midcap IT companies with a long-term investment horizon.
The biggest trigger going forward will be management commentary regarding:
- Demand recovery
- AI monetisation
- Client spending
- Deal pipeline
Technical View
According to Globe Capital Market:
- Nifty IT has formed a bullish Hammer pattern near major support.
- Short-term upside towards 29,000 remains possible.
- However, the broader trend still faces multiple resistance levels.
Conclusion
While the overall IT sector remains under pressure from AI-led pricing compression and slowing discretionary spending, analysts continue to favour select midcap IT companies over traditional large-cap names.
Among the preferred stocks, Coforge and Mphasis continue to receive strong support from multiple brokerages due to better growth visibility, strong execution, and healthier deal momentum.
The upcoming Q1 earnings season and management commentary will play a crucial role in determining whether this outperformance continues.
Disclaimer : This article is for informational and educational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any security. Stock market investments are subject to market risks, and analyst views may change over time. Investors should conduct their own research and consult a SEBI-registered financial advisor before making any investment decisions.
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