Mid-tier IT companies have been stealing the spotlight from the big players like Tata Consultancy Services (TCS) and Infosys, increasing their market share in the $254 billion sector.
This change comes as clients are forced to cut down on expenses due to inflation and economic uncertainties, according to analysts.
While giants like TCS and Infosys go after big, long-term projects, these mid-tier companies prefer shorter deals that help clients save money. This strategy has worked well, especially as demand slows in key markets like North America and Europe.
LTIMindtree, Coforge, Mphasis and Persistent Systems are "increasingly viewed as challengers in (winning) Fortune 500 accounts, aiding the share gain process," Kotak Institutional Equities told Reuters.
Analysts at Kotak believe these smaller companies could do even better once clients start spending more freely again.
This trend puts mid-tier IT firms in a good position to attract budget-conscious clients, especially with the expectation that US interest rates will stay high for a while. Last year, overall revenue growth in the industry dropped to 3.8%, according to Nasscom.
"In the current situation, clients want service providers who can deliver quality services at a lower cost and with predictable outcomes," Avinash Baliga, partner at consulting firm Avasant told Reuters.
Leaders of mid-tier firms like Persistent Systems and Mphasis have confirmed their gains in market share. However, larger IT firms in India didn't respond to requests for comments from Reuters.
"We're holding our own against the big guys because clients are more interested in our skills than our size," Manish Dugar, CFO of Mphasis told Reuters.
According to BNP Paribas data shared with Reuters, the market share of India's top five IT firms dropped by 17 basis points in 2023 due to the rise of mid-tier companies. Yet, these top five still own a significant chunk, about 88.35%, of the market among the top 10 firms.
On the stock market front, shares of Mphasis and Persistent Systems have seen solid gains in the past year—23.7% and 42.5% respectively—compared to a 16% rise in the broader Nifty IT Index.
In April, Infosys predicted its revenue growth for fiscal 2025 to be between 1% and 3% in constant currency terms, which was lower than what most analysts had anticipated.
"Because they've become so big, the larger players are giving conservative estimates," Ashok Soota, founder of mid-tier IT firm Happiest Minds Technologies, told Reuters. The IT firm has also gained market share.
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