Synopsis
Mid-tier IT services firms are outperforming larger rivals in revenue growth, driven by a focused approach on specific growth areas like cloud engineering and AI. Companies like Coforge and Persistent Systems are leveraging leaner structures and domain expertise to win clients, often through flexible pricing and outcome-based models.Listen to this article in summarized format
Large peers such as Infosys, HCLTech, and Tech Mahindra lagged in comparison, recording revenue growth of 0.6% to 3.9%, while Tata Consultancy Services and Wipro recorded revenue declines of 2.4% and 1.6%, respectively.
“The mid-tier firms are benefiting from being more focused, more aggressive, and frankly more adaptable than many of the Tier-1s right now,” said Phil Fersht, chief executive at US-based IT advisory firm HFS Research, highlighting that “companies like Persistent Systems, Coforge, Hexaware Technologies, and Mphasis are not trying to manage sprawling legacy portfolios across every geography and service line.”
Fersht said mid-tier firms are targeting “specific growth pockets such as cloud engineering, AI-led modernisation, BFSI, healthcare, data, and platform services, where enterprise demand remains strong.”
For instance, Coforge’s travel vertical, its largest segment, grew over 50% YoY despite the ongoing West Asia conflict, while Persistent Systems’ BFSI vertical grew around 25% YoY.
The additional attention to sub-verticals, according to Yugal Joshi, partner at US-based IT consultancy firm Everest Group, has become narrower and more execution-focused. “The focus does not just mean (service) differentiation,” he said. “It is the focus on sub-verticals, such as within BFSI, that would be either wealth management, investment banking or commercial banking.”
With the growing focus on domain knowledge, having a leaner organisation structure lends an advantage while servicing clients, industry experts said.
“For mid-tier companies, right now their size is an advantage,” said Namratha Dharshan, chief business leader at ISG. “Most of them have kept their head count stable or maintained selected hiring and continue to grow their revenue, while the larger companies are heavily focused on restructuring to cater to changing industry dynamics."
Persistent Systems saw a net addition of 791 employees, Coforge added 436 employees, while Mphasis added just around 96 employees, and LTM reduced its headcount by eight employees in the March quarter.
“Mid-tier firms are often winning because they can put senior talent closer to clients, move faster into production, and structure more flexible commercial models,” said Fersht. “In many cases, they are appearing more “AI-native” because they are not carrying the same organisational baggage as the larger incumbents.”
Analysts also said mid-tier firms are winning work as they are more flexible on pricing and contract structures than their larger rivals.
“Mid-tier firms also continue to demonstrate higher contractual flexibility including their push for outcome-based pricing. They are also focused on aggressively on expanding their accounts with focus on mid-market.,” said Dharshan.
With leaner organisation structures, analysts said it was easier for the firms to automate processes, even more so as AI became mainstream, helping them to clock revenue growth.
At the same time, analysts said the margin narrative around mid-tier firms is more complex than suggested by headline profitability numbers. “Some deals are being won with the expectation that AI-led productivity, automation, and future cross-selling will improve economics later,” Fersht said. “So, part of the current growth story is absolutely tied to margin sacrifice.”
However, Peter Bendor-Samuel, executive chairman at Everest Group, said mid-tier companies aren’t necessarily competing on price alone. “Their pricing is often not the lowest price,” he said, adding that they “often operate at a higher price in their smaller accounts,” with the lack of presence in Tier 2 or 3 locations or a higher onshore mix being contributing factors.
“They win not by being low price but by being a better fit and focusing on a different set of firms than the big guys,” said Bendor-Samuel.
