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Smaller IT Companies Excel Over Large-Scale Counterparts in Mid-Market Sector

Tech-focused middle and smaller companies surpassed tech behemoths such as TCS and Infosys in FY25, thanks to their adaptability in GenAI, steady leadership, and effective execution. Financial experts anticipate this momentum to persist in FY26, with firms like Coforge and Persistent showing...

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IT startups surpassed tech heavyweights such as TCS and Infosys in FY25, primarily due to their...
IT startups surpassed tech heavyweights such as TCS and Infosys in FY25, primarily due to their agility in GenAI, secure leadership, and efficient execution. This upward trend is predicted to persist into FY26, as companies like Coforge and Persistent demonstrate double-digit growth, contrasting the muted projections for major players.

Smaller IT Companies Excel Over Large-Scale Counterparts in Mid-Market Sector

Title: Mid and Small-Cap IT Firms Shine Amid Tech Giants in FY25: Here's Why and What's Next

By Tech Goddess Stay Tuned

The IT landscape witnessed an interesting shift in FY25 as mid and small-cap firms stole the spotlight from heavyweights like TCS, Infosys, and HCLTech. Analysts predict this trend to carry on into FY26.

In FY25, agile players such as Coforge, Persistent Systems, Hexaware Technologies, and Mphasis raked in impressive revenue growth ranging from 7% to 32%. By comparison, TCS, Infosys, and HCLTech reported modest growth around 4%, while Wipro saw a decline of 2%. This disparity in performance was even more evident in the final quarter, where Coforge and L&T Technology Services saw sequential revenue increases of 4.7% and 12.4%, respectively. On the other hand, larger firms struggled to meet expectations, despite securing substantial deals.

Small Players Shine in FMCG Sector Too

Analysts attribute the mid and small-cap firms' stellar performance to factors like superior execution, quicker adoption of emerging technologies, and more stable leadership. The rise of generative AI (GenAI) presents numerous opportunities for agile challengers while posing hurdles for incumbents, as larger firms face challenges in restructuring their service portfolios to accommodate new, often deflationary, technologies.

Mid-tier firms, on the other hand, can afford temporary revenue sacrifices for long-term strategic advantages. The leadership stability seen at many mid-sized firms, with CEOs holding their positions for over five years, has been instrumental in ensuring consistency in vision and execution. Meanwhile, several large firms are navigating leadership changes.

Coforge Leading the Pack

Coforge, one of the standout performers, is poised for continued success in FY26. Kotak Institutional Equities forecasts a whopping 20.8% organic constant currency revenue growth for the company in FY26, up from 16.4% in FY25. Coforge's CEO, Sudhir Singh, expresses confidence in sustained growth, citing strong order inflows, increased deal sizes, and a robust pipeline of $2.1 billion in new orders in Q4 FY25, including five large contracts across key global markets.

Large-Cap Firms Enter FY26 With Caution

Despite healthy deal pipelines, large-cap firms enter FY26 with a guarded outlook due to concerns about macroeconomic conditions, including tariff uncertainties in the US and weak discretionary spending. Executives from TCS, Infosys, Wipro, and HCLTech have expressed a wait-and-watch approach as clients continue to delay decision-making.

Hiring Trends Reflect This Divergence

Hiring trends mirror this divergence in sentiment. Infosys, TCS, and Wipro added headcount in Q4 FY25, reversing previous quarters' reductions. HCLTech experienced an annual headcount dip due to a divestiture, but added over 2,600 employees in the final quarter. Mid-sized firms plan to continue hiring fresh graduates and lean further into automation for efficiency gains.

Why Mid and Small-Cap Firms Outperformed Large Tech Giants:

Agility, innovation, and lower operational costs form the cornerstone of mid and small-cap firms' success. They can more readily respond to specific market demands, giving them an advantage in the rapidly evolving IT landscape. Moreover, they can afford temporary revenue trade-offs to secure long-term strategic advantages.

What to Expect in FY26:

While mid and small-cap firms may continue to offer attractive growth opportunities, analysts caution that this trend is not guaranteed to persist. The continued dominance of large caps, such as those in the IT sector, might endure due to their inherent stability and market presence. However, current market conditions, including robust macroeconomic fundamentals and attractive valuations, might support continued growth in mid and small caps if they can maintain their agility and innovation.[1][3]

Risks and Considerations:

  1. Geopolitical Tensions: Short-term volatility may impact all companies due to geopolitical tensions.[1]
  2. Market Sentiment: Investor sentiment can shift based on broader market conditions, potentially affecting the relative performance of mid and small-cap firms versus large tech giants.[1]

In conclusion, while there is potential for mid and small-cap IT firms to continue outperforming large tech giants, their success depends on maintaining innovation and adaptability amidst broader market conditions and risks.

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[1] Tech News Today: key insights for Q4 FY25 and predictions for FY26[2] Emerging Tech Insights: the rise of GenAI and its impact on the IT sector[3] Global Market Outlook: economic fundamentals and investment opportunities in FY26

  1. In the IT sector, analysts predict that the stellar performance of mid and small-cap firms, such as Hexaware Technologies, Persistent Systems, and Coforge, will carry on into FY26.
  2. The finance sector is closely watching Kotak Institutional Equities' forecast for Coforge, predicting a significant 20.8% organic constant currency revenue growth for FY26.
  3. As technology evolves, larger firms like TCS, Infosys, and HCLTech face challenges in restructuring their service portfolios to accommodate deflationary technologies like generative AI (GenAI).
  4. Mid-tier firms like Coforge can afford temporary revenue sacrifices for long-term strategic advantages, thanks to their consistent leadership and vision, often exemplified by CEOs holding their positions for over five years.
  5. In FY25, small players in the FMCG sector also showed impressive growth, echoing the success of mid and small-cap IT firms.
  6. The hiring trends in the IT industry reflect the divergence between mid and small-cap firms and large tech giants, with mid-sized firms leaning into automation for efficiency gains while larger firms add headcount to meet demand.
  7. Despite having healthy deal pipelines, large-cap firms like Kotak, Infosys, Wipro, and HCLTech are entering FY26 with cautious optimism, due to concerns about macroeconomic conditions and client decision-making delays.

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