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

Mphasis

22/05/2024 07:19

By Sai Ishwarbharath B
       BENGALURU, May 22 (Reuters) - 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
 TCS.NS  and Infosys  INFY.NS , 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  LTIM.NS , Coforge  COFO.NS , Mphasis  MBFL.NS 
and Persistent Systems  PERS.NS  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% 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% 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% and 42.5% respectively in the last 12
months compared to a 16% gain in the broader Nifty IT Index.
    In April, Infosys forecast fiscal 2025 revenue growth
between 1% and 3% in constant currency terms, while most
analysts had expected it to be at least in the range of 2% to
5%. 
    "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  HAPP.NS  , which
also gained market share. "We need to be humble about this as
(our) market share is (relatively) small on the grand total."

 (Reporting by Sai Ishwarbharath B; Editing by Dhanya Skariachan
and Shri Navaratnam)
 ((saiishwarbharath.b@thomsonreuters.com;))