THE INDIAN TECH industry is expected to hit $300 billion in revenues in FY26 despite headwinds — policy uncertainty and slow recovery of discretionary spends — according to industry body Nasscom’s strategic review meet in Mumbai earlier this year. The review report said tech firms added $13.8 billion in incremental revenues to reach $282.6 billion (including hardware) in FY25.

Engineering R&D grew the fastest in FY25 at 7%, while products and hardware grew 5.9% and 5.8%, respectively, contributing a combined revenue of $90.9 billion. The IT services segment saw the slowest growth at 4.3%, contributing $137.1 billion.

Returns: large-caps v/s mid-caps

The data on stock returns of large- and mid-cap IT firms throws up interesting numbers. Of the large India-headquartered IT services firms such as Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, Tech Mahindra and LTIMindtree that saw slow growth, it was the mid-cap companies such as Persistent Systems and Coforge that turned out to be a delight for investors.

As of end-March 2025, large-cap IT stocks posted muted returns. Wipro returned 8.08%, Infosys 4.99% and HCLTech 2.22%. TCS returned a negative 7.9%. A year into its transformation plan under a new boss, CEO Mohit Joshi, Tech Mahindra returned 13.91% as industry analysts saw early green shoots. Of the three mid-tier IT services companies — L&T Technology Services, Persistent Systems and Coforge — that joined the billion-dollar revenue club in FY23, on the back of accelerated double-digit growth, Persistent Systems and Coforge delivered a record 37.85% and 47.50% in returns.

For promoters, the markets embracing or distancing these stocks has also resulted in the fluctuation of their net wealth, tied to the company.

Promoters N.R. Narayana Murthy and S. ‘Kris’ Gopalakrishnan who hold 0.41% and 0.86%, respectively, in Infosys, saw their wealth drop from $3.74 billion and $3.52 billion in 2024 to $3.12 billion and $2.93 billion, respectively, in 2025 (as on June 30), according to the 2025 Fortune India-Waterfield Advisors study of India’s Top 100 Billionaires. The wealth of Wipro’s Azim Premji diminished by over $2.6 billion in 2025, compared to the previous year. Having grown 4.7% in constant currency terms in FY25, HCLTech’s founder Shiv Nadar’s wealth rose from $32.85 billion in 2024 to $33.29 billion in 2025.

Despite moderate single-digit earnings growth in FY25, stocks of large IT firms work as stable and defensive investment amid global economic uncertainties, says Biswajeet Mahapatra, principal analyst at Cambridge-headquartered advisory firm Forrester Research. “The key differentiators among big IT companies that will set the direction of stock valuations in the coming days revolve around their leadership in emerging technologies such as artificial intelligence (AI), cloud computing, and cybersecurity, along with their ability to successfully execute large-scale digital transformation projects for global clients.”

“Mid-cap IT companies often command higher multiples because they typically exhibit faster growth rates, improving return ratios, and greater agility to capitalise on new opportunities, thus narrowing the valuation gap with large-caps,” he adds.

With the markets willing to put a premium on mid-cap IT stocks, Persistent promoter Anand Deshpande, who owns 29.35% in the firm, has entered India’s Top 100 Billionaires club. His wealth rose from $2.7 billion in 2024 to $3.31 billion in 2025.

Behind high valuations

With the U.S. being a significant market for the IT services industry and despite the uncertain business environment created by American policymaking since the beginning of this year, the market has not shied away from ascribing significant value. The price-to-earnings (P/E) ratio of mid-cap firms has been inching up significantly compared to large-cap firms over the past two years. Persistent, Coforge and Mphasis have seen their P/E ratio go up from 56.2, 42, and 29 in FY24 to 69.62, 76.69, and 31.8 as on June 30, 2025. However, for large-caps, the PE has either moderated or remained flat during the same period. In a recent note on the Indian IT Services sector investment strategy, HSBC Global Investment Research noted that the long-term stock return trajectory gradient will not only be lower than in the past, but stocks will also be a lot more cyclical around this mean path. “IT stocks (especially top-tier IT companies) are no longer five-year buy-and-hold compounding stocks; they now require a lot more active management around their cycles/volatility,” the note said.

For mid-cap firms, size has turned out to be their strength, providing agility and faster decision-making compared to the larger ones. Mid-size firms have also been quicker buyers of small-ticket size companies in a bid to bolster capabilities and scale. For instance, Persistent spent $2 million-plus to acquire Lithuania-based SoHo Dragon LT, to aid its BFSI vertical with capabilities around software application development, business intelligence, and data warehousing. Coforge shelled out nearly $18 million to buy Xceltrait Inc., a specialist in the implementation of ServiceNow’s Financial Services Operations (FSO) and Customer Service Management (CSM) modules.

Sandeep Gogia, MD, Equirus Group, agrees that even as large IT services firms have a roadmap for new technology, especially Gen AI, perhaps the clarity on growth trajectory, if compared to industry leader Accenture, remains elusive. During the latest earnings call, Accenture CFO Angie Park said of the 6-7% revenue growth in FY25, inorganic contribution for the full year was around 3% and the firm is expected to invest about $1-1.5 billion in acquisitions this fiscal.

Consistency in inorganic growth strategy is currently a missing piece for big IT companies in India, according to Gogia. “If you see Accenture, they would not do an earth-shattering deal. Their thought process [around acquisitions] is — what are the new-age capabilities that are lacking, and that there should be some scale, say at least get a 500-1,000 people team there that they can build a practice around. So, that’s one thing that is missing. If I look at these top 5-6 companies, either they are doing it only for scale, and some of them still have to figure out the inorganic strategy... Gen AI will also be a part of it,” he says.