India’s mid-tier IT services firms posted a stronger performance in Q1, outshining their large-cap counterparts on key profitability metrics even as the broader IT sector continues to grapple with weak global demand and sluggish discretionary tech spending.

Among the large-cap IT firms — Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro — only TCS managed to grow its net profit sequentially, posting a 4.4% quarter-on-quarter growth, boosted by one-off income tax gains and reduced expenses related to the winding down of a large transformation project for BSNL. In contrast, Infosys saw a 1.6% drop in profit despite the best topline performance among the four. HCLTech and Wipro were hit harder, with profit declining 10.8% and 6.7% respectively, reflecting continued pressure on margins amid client spending cuts and wage-related costs.

Mid-cap IT companies, on the other hand, delivered stronger profitability performance overall. LTI Mindtree led the pack with an 11.1% sequential rise in profit, Persistent Systems reported a 7.4% increase while L&T Technology Services’ profit grew at 1.5%. Tech Mahindra and Coforge lagged with a 2.2% and 4.8% sequential decline in profit, respectively.

Notably, mid-cap players were able to sustain their quarterly Ebit margins despite their smaller scale. Three of them — TechM, Persistent, and LTIMindTree — reported margin expansion in Q1 while it was steady for Coforge and L&T Tech. Among the large players, only TCS reported a sequential expansion of Ebit margin to 24.5%, while the other three reported a decline. HCLTech, in particular, marked the sharpest contraction in operating margins to 16.3% in Q1 from 17.9% in the previous quarter, marking the weakest June-quarter margin in six years.

The subdued numbers were largely attributed to lower employee utilisation, continued investments in generative AI and go-to-market capabilities, and a one-time client impact. On the revenue front, large-cap and mid-cap IT firms delivered a mixed set of results across the board, although the latter recorded overall better topline growth than their larger peers.

Among the large companies, Infosys stood out as the only company to report revenue growth in constant currency, while its peers saw a decline. TCS, in particular, reported its first revenue decline in over four years. Infosys reported sequential revenue growth of 3.3%, benefiting from the steady execution of large short-term deals signed earlier this year. Both TCS and Wipro reported decline of 1.6% in Q1, while HCLTech’s revenue growth was largely flat at 0.3%.

Among the mid-cap firms, Coforge surpassed its peers by a large margin in terms of revenue growth. The company reported constant currency revenue growth of 8% in Q1, while analysts expected the growth to be between 6.5-7%. Persistent and LTIMindtree also reported 2.8% and 0.7% sequential rise in revenue, while L&T Tech revenue fell sharply, 3.9%, missing estimates. LTI Mindtree revenue growth was largely flat at -0.2%.

However, despite a mixed revenue performance, large-cap firms managed to post stronger deal wins in Q1. Both Wipro and Infosys posted higher deal wins than in the fourth quarter, while the new deal wins by TCS and HCLTech edged lower. As for mid-caps, deal wins were steady in Q1. For Coforge, it was a sharp drop in its total contract value as Q4 included a $1.56 billion deal with Sabre.

Mid-cap IT firms top larger peers on Ebit front

India’s mid-tier IT services firms outperformed large-cap peers in Q1 2025, with stronger profitability metrics despite weak global demand. Large-cap firms like Tata Consultancy Services (TCS) saw mixed results, while mid-cap companies such as LTI Mindtree and Persistent Systems reported significant profit growth. Revenue performance was mixed, with Coforge exceeding revenue growth expectations, while large-cap firms maintained stronger deal wins.