UBS sees mixed outlook for Indian IT sector, mid-tier firms outperform large caps amid AI shift

New Delhi [India], May 20 (ANI): The Indian IT services sector witnessed mixed performance in the fourth quarter of FY26, with mid-tier companies outperforming large-cap firms as artificial intelligence (AI)-led transformation and macroeconomic uncertainty reshaped client spending trends, according to a report by UBS.
The report stated that after two quarters of earnings beats, the sector saw more misses than expected in Q4FY26, particularly among large-cap IT companies.
It stated, "Clear divergence between mid-tier and large-cap companies... Q4FY26 prints were mixed, with more misses than beats."
According to UBS, companies such as Infosys, HCL Technologies and Wipro reported weaker-than-expected performances and issued lower revenue growth guidance for FY27.
Infosys guided for FY27 revenue growth of 1.5-3.5 per cent year-on-year in constant currency terms, while HCL Technologies projected 1.5-4.5 per cent growth for its services business. These forecasts came below market expectations.
The report noted that management commentary reflected caution due to AI-related deflation and weakness in discretionary spending by clients.
UBS added that consensus earnings estimates have been reduced modestly, with earnings per share (EPS) cuts of 0-3 per cent across most large-cap companies for FY27 and FY28.
However, the report highlighted a clear divergence between large-cap and mid-tier IT firms.
Coforge emerged as a strong performer with a robust outlook, leading UBS to raise its price target for the company by 21 per cent. The brokerage said Coforge's margin improvement was stronger than expected, with margins at 16.6 per cent in Q4FY26 and FY27 guidance of 16.5-17 per cent.
Persistent Systems and Mphasis also maintained healthy growth narratives backed by strong deal momentum.
According to UBS, the overall macroeconomic environment remains subdued as geopolitical uncertainty and tight IT budgets continue to pressure discretionary spending by clients.
The report stated that enterprises are increasingly shifting spending toward AI, cloud and modernisation-related programs while focusing on productivity and cost optimisation.
Among sectors, banking, financial services and insurance (BFSI) and manufacturing remained relatively resilient due to AI-led demand, while retail and communications continued to witness weakness.
Geographically, Europe was seen as a relatively brighter spot, while the Americas remained resilient due to a healthy deal momentum.
UBS said AI initiatives have now become central to the sector's growth strategy. (ANI)

(This article was generated from news agency ANI without modifications to the text.)