India's mid-tier IT firms gain market share from industry goliaths

Bengaluru: Mid-tier firms in India's $254 billion information technology sector took market share from industry goliaths in recent quarters as clients curtailed discretionary spending amid inflationary pressures and economic uncertainty, analysts said.

Unlike their larger rivals such as Tata Consultancy Services and Infosys, mid-tier IT firms tend to focus on short-term deals aimed at helping clients cut costs rather than chase large-scale projects.

The practice has paid off in an environment of slowing demand in prominent markets such as 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 said.

The smaller companies could outperform their larger rivals further once discretionary spending improves, Kotak analysts Kawaljeet Saluja, Sathishkumar S and Vamshi Krishna said.

This should set the mid-tier IT firms up well as they try to win more budget-conscious clients in an economic backdrop where U.S. interest rates are expected to stay "higher for longer". Industry body Nasscom estimated overall revenue growth more than halved to 3.8 per cent last financial year.

"In the current macro environment, clients are increasingly looking at service providers (that) deliver services at lower and predictable costs with better business outcomes," said Avinash Baliga, partner at consulting firm Avasant.

Persistent Systems CEO Sandeep Kalra and Mphasis CFO Manish Dugar confirmed the market share gains. India's larger IT firms did not respond to Reuters' requests seeking comment.

"We are able to hold our own and win against the larger piers as clients are looking for competency and not scale," Dugar told Reuters.

The market share of India's top five IT firms fell 17 basis points in 2023, reflecting the inroads made by the mid-tier IT firms, according to BNP Paribas data shared exclusively with Reuters. However, the top five IT firms still owned 88.35 per cent of the market as of December 2023 among the top 10 firms.

On the stock market, share prices of Mphasis and Persistent Systems advanced 23.7 per cent and 42.5 per cent respectively in the last 12 months compared to a 16 per cent gain in the broader Nifty IT Index.

In April, Infosys forecast fiscal 2025 revenue growth between 1 per cent and 3 per cent in constant currency terms, while most analysts had expected it to be at least in the range of 2 per cent to 5 per cent.

"Due to the sheer size they have reached, larger players have given muted guidance," said Ashok Soota, founder of mid-tier IT firm Happiest Minds Technologies , which also gained market share. "We need to be humble about this as (our) market share is (relatively) small on the grand total."