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Tier2/3 IT companies’ earnings: Few performances stand out

ICICIdirect Research 23 Jan 2026 DISCLAIMER

Q3 earnings for the midcap and small-cap IT sector were mixed, largely in line with seasonal expectations. Demand stayed patchy with furloughs weighing on volumes for most players coupled with one off from new labour code impacting the bottom lines.
On the growth front, a few names clearly outperformed wherein Tech Mahindra delivered 1.7% QoQ CC revenue growth while Persistent Systems and Coforge continued to lead the pack with 4.1% and 4.4% QoQ CC growth, supported by strong execution and steady deal ramp-ups. Most other midcap IT companies reported -5 to +1.5% QoQ CC growth, reflecting seasonal softness amid a volatile demand environment.
Notably, margins were a positive surprise this quarter where Zensar, Tech Mahindra, Coforge, Persistent delivered ~80-200 bps QoQ margin expansion despite furloughs from lower working days and wage hikes for few players.
Order books grew sharply for Tech Mahindra which recorded its highest deal wins in five years at US$1.1 bn, up 34% QoQ and 47% YoY while Persistent noted a 11% QoQ growth in its TCV to US$675 mn and Coforge expanded its order book by 30% YoY to US$1.72 bn.
From a vertical standpoint, BFSI remained soft due to furloughs, while manufacturing and hi-tech showed relatively better resilience, supported by vendor consolidation and efficiency-led spends. Healthcare and public sector demand stayed stable but selective.
Deal execution remains uneven. We believe, players with healthy order inflows and deal ramp-ups such as Persistent and Tech Mahindra are better positioned, while companies like Newgen Software and Mastek which saw delays in large deal closures may see near-term revenue volatility. Thus, we continue to prefer companies like Persistent and Tech M with strong order books and improving pipeline conversion while staying cautious on players facing deal deferrals and elongated conversion cycles.

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