Indian IT firms delivered a largely stable performance in Q1 FY27. Most companies posted growth that matched expectations and kept their FY27 guidance unchanged. Infosys stood out as the only major deviation from this trend.
Tier‑2 IT firms continued to enjoy a growth premium over larger peers, reflecting healthy deal pipelines and strong execution. Their focus on niche services helped maintain momentum.
Nuvama expects momentum to pick up in the second quarter, driven by new and ramp‑up deals and sustained demand for cloud, data and AI‑related services.
Margins remained in line with or ahead of expectations, thanks to higher utilisation, operational efficiencies and productivity gains.
However, discretionary spending remains selective and decision‑making cycles are still elongated, which could temper short‑term growth.
The brokerage noted that IT stocks are reacting more to global AI/Anti‑AI trades than to fundamentals, yet improving deal wins and low valuations point to stronger underlying fundamentals.
A new trend in generative AI is emerging where large enterprises ask tech firms to build application layers that secure data and sit above any large language model they choose. This architecture lets clients switch between AI models while optimising token costs, potentially driving demand for such services in coming quarters.
BFSI and healthcare were the strongest verticals in Q1, while retail remained stable. Manufacturing, especially auto, stayed soft due to delayed investments, and high‑tech sector demand was mixed.
Nuvama remains positive for the sector over the medium to long term, arguing that system integrators will still be required to customise enterprise software despite the rise of Gen AI.
Some near‑term revenue cannibalisation from AI is expected before the industry reaches an inflection point, after which the opportunity could expand the total addressable market to $300‑400 billion by 2030.
After a sharp correction, valuations appear attractive, but volatility may persist in the near term.