The Great IT Divide: Why India's Mid-Tier Firms are at an AI Advantage

While India’s IT majors still dominate services by the sheer contracts volume, FY26 earnings showed the industry’s AI momentum shifting decisively toward mid-tier rivals. Companies such as Coforge, Mphasis, and Persistent Systems are outpacing giants through quicker AI adoption, sharper vertical focus and a greater willingness to overhaul the traditional services models.

TCS, Infosys, Wipro, and HCLTech managed to stay afloat in a difficult demand environment in the last fiscal year, leaning on deal wins and margin discipline, promising native AI pivots and integrating agentic AI into legacy systems. However, investors remain wary, with the shares of these companies declining between 3% and 18% over the past month.

TCS reported a 0.5% decline in FY26 revenue in dollar terms, its first-ever annual dollar revenue decline, while Infosys projected FY27 growth below Dalal Street expectations and Wipro guided for another weak quarter. 

By comparison, Coforge posted 29.2% annual revenue growth, giving a robust growth outlook for FY27. Mphasis grew 11.6% YoY, and Persistent Systems delivered its 24th straight quarter of sequential expansion.

Industry analysts say this divergence reflects a structural shift in how AI is reshaping outsourcing economics.

“I would say it’s agility,” Viswanathan KS, who formerly served as a vice president at Nasscom, tells AIM. “In the old hardware era, we used to call it MTRCCD—mean time to respond to changing customer demand. Today, that translates into agility: the ability to turn around quickly.” 

For large incumbents with hundreds of thousands of employees and massive legacy outsourcing contracts, adapting to AI-driven delivery models has proved significantly harder than it has for smaller, more specialised rivals.

Large Caps Stuck in Transition

For the industry’s largest firms, the challenge is not a lack of AI ambition but the complexity of transformation at scale. With hundreds of thousands of employees and massive legacy outsourcing contracts, adapting to AI-driven delivery models has proved significantly harder than it has for smaller, more specialised rivals.

TCS closed FY26 with $30 billion in revenue, but growth slipped into negative territory even as operating margins touched a four-year high of 25%. The company said annualised AI revenue crossed $2.3 billion in the fourth quarter, still only a small share of the overall business.

Infosys reported FY26 revenue growth of 3.1% in constant currency, but its FY27 guidance of 1.5–3.5% disappointed analysts who were expecting a stronger recovery. CEO Salil Parekh pointed to rising demand for AI services while also acknowledging that AI-driven productivity gains are compressing traditional billing volumes, an emerging tension, particularly for large firms built on time-and-material contracts.

“As we look ahead to the financial year 2027, we see large opportunities in AI services. We also see continued competitive intensity, and we see an AI productivity impact,” Parekh said in a press briefing.

Wipro had the weakest showing among the tier-1 firms, with FY26 IT services revenue declining 1.6% in constant currency and Q1 FY27 guidance indicating another soft quarter ahead. HCLTech fared relatively better, growing 3.9% in constant currency for the year, although margins came under pressure from weak services demand and seasonal softness in software revenue.

Margins are also expected to remain under pressure due to investment in AI capacity building.

“For a giant like Infosys, AI is a margin risk. It compresses the billable hour and reduces headcount. It is cannibalising their core business model,” Rishabh Khandelwal, Founder and CEO of Sabiduria Capital, observed in a LinkedIn post.

The Mid-Tier Playbook

Mid-tier firms are trying to position AI as the core of their business model rather than an adjacent service offering. It also helps that they are equipped to deliver AI-driven outcomes at speed—exactly what global clients demand.

“Mid-cap IT firms are stepping into that exact gap. They don't have legacy 300,000-employee structures to protect. They can bake AI productivity gains directly into their bids on day one and still make healthy margins. That is why you are seeing mid-tier firms suddenly snatching massive transformation contracts across Europe and the US,” Khandelwal noted.

In the fiscal year gone by, mid-tier IT firms scooped up some major AI deals.

Coforge bagged a $158 million, five-year contract with a UK-based client. Persistent Systems added five large clients for AI modernisation and data engineering. Zensar Technologies landed a $210 million contract with a financial services player, while LTM (formerly LTIMindtree) signed a seven-year, $100 million contract with a European medtech company for AI solutions.

Analysts say mid-tier and small-tier players are experimenting more and are also less exposed to the legacy outsourcing contracts that generated stable revenues for large IT firms for decades. But now they are also vulnerable to AI-driven automation and pricing pressure.

“I believe that most mid-tier and small-tier companies have either built or are building AI solutions specialised for clients. They are able to do this because they are not too big to fail,” says Uddeshya Goel, a financial advisor at Empirica India.

He adds that larger firms have been slower to experiment with AI-led research and development, while smaller firms have shown a greater appetite for risk and innovation.

Leadership continuity may also have played a role. Sudhir Singh has led Coforge since 2017, while Sandeep Kalra has headed Persistent since 2020, and Nitin Rakesh has been leading Mphasis since 2017. Stable management teams may have enabled mid-tier firms to execute long-term AI strategies faster, without the organisational complexity and internal resistance.

Sector-specific focus is also proving to be another advantage. Coforge has built strength in banking, financial services (BFS) and insurance; Mphasis has deep exposure to fintech and BFS; and Persistent Systems has specialised in software product engineering. 

“Mid-tier IT firms have created their own proprietary solutions for particular sectors. Hence, they are able to cater specifically to those sectors, rather than offering a general solution for all industries. That is one of the main reasons why these firms are able to give better guidance,” says Goel.

The divergence is now visible in FY27 outlooks as well. While tier-1 firms are publishing low single-digit guidance growth amid macroeconomic uncertainty and AI-led disruption, mid-tier companies are entering the year with record pipelines, expanding margins and AI-heavy deal books. The shift suggests that in the emerging AI era, speed and specialisation may be becoming more valuable than sheer scale.