Nomura sees marginal growth pickup in Indian IT in FY27; mid-caps to outpace large caps

The Indian information technology (IT) sector could see a marginal improvement in revenue growth in 2026-27 (FY27), with mid-caps likely continuing to outpace their large-cap peers, according to Abhishek Bhandari, Executive Director of Technology and Internet at Nomura.

Bhandari is now more positive on the sector than last year, citing early signs of artificial intelligence (AI) related spending and favourable currency movements.

Nomura's recent report projects that revenue growth for large-cap IT companies could improve to 4.5% in the next financial year, up from the current 3%. A key factor influencing profitability is the Indian rupee's exchange rate against the US dollar. Bhandari explained that a 1% depreciation in the rupee typically translates to a 25 to 30 basis point improvement in margins for the IT sector. "That's a very short-term thing. Eventually, if you look at the long-term trends, the currency benefit is not kept by the IT companies; it's eventually passed on to the clients," he clarified.

For the upcoming year, Nomura forecasts the rupee to average around ₹89 to the dollar, compared to approximately ₹87.5/$ this year. Based on this, the firm is factoring in a close to 30 basis point margin improvement for large-cap IT companies.

Addressing investor sentiment, Bhandari acknowledged significant pushback, largely centred on AI and its potential impact on growth. He said that globally, the tech narrative is focused on identifying "winners versus losers," and Indian IT services are currently perceived as "AI losers." This perception stems from the sector not having significantly participated in the AI wave so far and facing revenue deflation from accelerated discounting offered to clients.

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"The pushback generally what we get from the clients is, you know, when will that perception of IT companies being an AI loser change into the other side," Bhandari stated. He added that even without considering AI, the sector is viewed as having low growth compared to the highs seen during the COVID-19 period.

However, Bhandari argued that the long-term outlook remains promising. He pointed out that historically, IT services businesses have benefited from technological shifts, as enterprises invariably anchor themselves to new technologies where innovation is concentrated. "This time is not going to be any different, according to us. It's more of a timing issue," he asserted. The delay, he explained, is longer than expected because clear winners in the AI space have yet to emerge, with new and better models appearing constantly, making it difficult for enterprises to commit to a specific AI stack.

Despite these challenges, Nomura's stance on the sector has turned more positive. Bhandari highlighted emerging evidence that the narrative around AI is improving for IT services. "We are already seeing evidences of the POC (proof-of-concept) projects moving to point solutions, which is generally the start of AI spending," he said.

Also Read: Why the Street is heavily divided on IT stocks

He also pointed to commentaries from global IT service firms, such as Cognizant, which indicate the beginning of smaller AI-related projects. Furthermore, he anticipates that as large global cloud companies seek to monetise their significant AI investments, spending on the application layer will increase, creating opportunities for Indian IT services firms to participate.

For the entire interview, watch the accompanying video

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