Tier 2 IT Stocks Outshine Larger Peers Amid Strong Q4 Results

Mumbai, 15th May – Persistent Systems, Coforge, LTI Mindtree, and other Tier 2 IT companies have emerged as the star performers in the IT sector, outpacing their larger counterparts in the wake of strong Q4FY25 earnings. Their superior topline growth and improved margins reflect a strategy focused on niche segments, offering investors a more compelling story than the traditionally dominant Tier 1 firms.

As global risks subside, notably through US-China trade de-escalation and softening inflation, investor confidence in Indian IT stocks has surged. The NIFTY IT index is up 22% from its 52-week lows of April 7, while NASDAQ has rebounded 27%, restoring optimism in the tech-heavy market.

Stronger Growth for Midcaps: Why Tier 2 Is Winning

The standout factor for Tier 2 IT firms in Q4FY25 has been their strong revenue growth, in the range of 7–10%, and improved operational performance. Companies like Persistent Systems and LTI Mindtree benefitted from their sharp focus on high-growth sectors such as automotive, engineering services, and global capability centres (GCCs). These players are capitalising on shorter deal cycles and higher-margin opportunities, which has driven their impressive recovery from the market lows.

Conversely, Tier 1 companies like TCS, Infosys, and Wipro struggled with more modest growth rates of 2–4%, hindered by global slowdown in key markets and cautious spending amid macroeconomic uncertainty. Even though HCL Technologies reported a strong 7.1% YoY growth, it was an exception rather than the rule among Tier 1 players.

Operational Metrics:

The focus on cost optimisation and operational excellence allowed many Tier 2 companies to report better-than-expected earnings, leading to improved EBIT margins and operational efficiencies.

Deal Wins: Tier 2 Players Securing Big Contracts

Despite the market challenges, deal wins in Tier 2 companies have remained resilient. Persistent Systems secured contracts worth $329 million, while Coforge and LTI Mindtree strengthened their portfolios in automotive and GCC sectors. This is in contrast to Tier 1 players, where deal wins were more focused on larger, longer-term contracts with slower ramp-ups.

Share Price Performance Since April 7, 2025 

Outlook: 

Looking ahead, the outlook for Tier 2 IT companies remains positive, as they continue to capitalise on high-margin sectors and niche verticals that are expected to grow faster than traditional IT services. However, volatility remains, and these companies’ ability to maintain margins and manage client concentration will be key.

For Tier 1 companies, while the global slowdown has been a drag, there are signs of stabilisation. As US-China tensions ease and global markets recover, larger players could see a resurgence, but for now, Tier 2 players appear to have the upper hand.