Brokerage's sector view
Anand Rathi Shares and Stock Brokers remains structurally positive on the IT sector, citing opportunities from AI deployment and integration, legacy modernisation, data optimisation, agentic lifecycle management, token optimisation, small language model deployment and sovereign AI, as reported by Business Today and The Economic Times. The brokerage expects enterprise software to monetise AI opportunities first through FY27, followed by services as deployment scales into FY28.
Despite this structural optimism, the brokerage struck a cautious tone on near-term performance. As reported by The Economic Times, Anand Rathi remains "cautiously positive" on the midcap IT sector, with execution-focused companies expected to benefit from vendor consolidation and cost-take-out deals. However, tech-focused midcaps could face pressure as hyperscalers prioritise cost savings amid large AI and data-centre capital expenditure.
The brokerage said Q1FY27 was a weak quarter, with median year-on-year constant-currency revenue growth for midcap IT services companies moderating to around 2.1% from 3.8% in Q4FY26. Median margins declined to 14.7% from 15.9%, despite a 3.3% sequential depreciation in the rupee. It attributed the margin pressure to delayed deal ramp-ups, foreign exchange and hedging losses, proactive hiring ahead of demand and company-specific investments.
Persistent Systems: preferred pick with strong deal momentum
Persistent Systems remains one of Anand Rathi's preferred picks, supported by its execution and deal momentum, according to both Business Today and The Economic Times. The company's Q1 revenue grew 16.5% year-on-year in constant-currency terms, while total contract value (TCV) rose 120% year-on-year, aided by a mega deal worth more than $650 million.
Business Today reported that this took Persistent's last-twelve-month (LTM) TCV to around $3 billion, up 40.2% year-on-year, providing a strong growth runway. The brokerage also highlighted Persistent's AI strategy, including SASVA and its 3C enterprise-context architecture, along with strong client mining. Its top-five clients grew 21.2% year-on-year, compared with 17.4% growth for its top 100 clients, according to the same report. Cash conversion and Nagarro integration remain key monitorables, Business Today noted.
Mphasis: bookings translating into revenue
Mphasis also features among Anand Rathi's top IT picks, with the brokerage citing deal momentum and improving growth visibility, as reported by Business Today. TCV remained above $400 million for the fifth consecutive quarter, while AI-led deals accounted for around 70% of the pipeline, according to the report.
Management expects Q2 to deliver its strongest sequential constant-currency growth in three years, which Anand Rathi said provides confidence that bookings are beginning to translate into revenue. The brokerage noted that Mphasis' FY27 growth and margin guidance remains intact, with high-single-digit to low-double-digit CC growth, Business Today reported.
Mastek: a possible turnaround
Anand Rathi described Mastek as a "possible turnaround story", citing a valuation of around 10 times FY29 estimated price-to-earnings and an adjusted FY27-29 EPS CAGR of around 10%, as reported by Business Today. The brokerage pointed to leadership changes in the US and operations, and expects "green shoots" to emerge, while noting that Mastek's UK business remains a compounder.
The Economic Times added that Mastek's order backlog increased 13.3%.
Sector dynamics: what worked and what didn't
The Economic Times reported that deal momentum remained resilient among select companies. Persistent emerged as the strongest growth performer, reporting 16.5% year-on-year constant-currency growth, supported by client mining and a $650 million-plus mega deal, with TCV rising 120% year-on-year. Mphasis delivered its fifth consecutive quarter of more than $400 million in TCV, while Mastek's order backlog increased 13.3%.
The brokerage said BFSI remained a relatively consistent growth engine for midcap IT services, while the Middle East and some discretionary spending segments remained weak amid geopolitical disruptions. Auto-focused ER&D was particularly affected, with KPIT's revenue declining 3.6% sequentially, weighed on by European OEM weakness and programme delays, according to The Economic Times.
BPO remained comparatively resilient, with Firstsource reporting 12.3% year-on-year growth and maintaining its FY27 revenue guidance of 10-13%.
Anand Rathi expects improved deal conversion and operating leverage in H2FY27, but revenue growth is likely to remain muted through the year due to AI-led deflation, geopolitical disruptions and delayed deal ramp-ups, as reported by The Economic Times.