India’s mid-sized information technology (IT) services firms are growing revenues from banks and financial institutions — the market that built the IT industry — faster than their larger rivals.
According to a Mint analysis of company financials between FY20 and FY26, revenue from managing IT needs of financial institutions has grown at a compounded annual growth rate (CAGR) of 9-23% for four mid-cap firms. For the top five large cap companies, revenue from BFSI (banking, financial services and insurance) firms grew at a CAGR of 5-8% over the same period.
Two companies — Coforge and Persistent Systems — have seen their revenue from the BFSI segment more than double to $776 million from $261 million, and to $572 million from $148 million, respectively.
BFSI makes up more than 16% of the revenue for the country’s largest tech services firms and are their largest cash cows.
Mint’s analysis shows revenue from financial institutions for TCS, Infosys, Wipro and Tech Mahindra grew at a compounded annual growth rate (CAGR) of 5.96%, 5.74%, 5.67%, and 6.71%, respectively, from FY20 to FY26. HCLTech’s revenue from banks grew 7.19% from FY21 to FY26 — the company’s FY20 revenue from banks is not publicly available.
Mid-sized firms find a sweet spot
On the other hand, revenue growth from financial institutions grew at a faster clip for the country’s mid-sized tech services firms, which earn $1-5 billion in annual revenue.
LTM, Coforge, Mphasis, and Persistent Systems’ revenue from finance companies grew at a compounded annual growth rate of 10.46%, 19.95%, 9.33%, and 25.27%, respectively, over the same period. Their revenue in absolute terms totalled $1.68 billion, $776 million, $1.2 billion, and $572 million, respectively.
“BFSI continues to be one of LTM’s most strategic industry segments,” said an LTM spokesperson, in response to Mint's email.
“Our ability to sustain this momentum comes from a clear understanding of our clients’ businesses and a differentiated engagement model. This enables us to engage across key areas of client spend, while our focus on proactively solving real business problems has helped build a highly qualified pipeline,” said an Mphasis spokesperson in response to Mint's email.
“In the sector, regulatory compliance and identity and access management are seeing healthy demand; these are especially relevant as financial institutions modernize customer journeys while retaining strong security and control frameworks,” said a Tech Mahindra spokesperson in response to Mint's email.
Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities, attributed this trend to a lower revenue base for mid-caps and the kind of clients that the mid-sized IT firms engage with.
“Most BFSI clients of the mid-caps are tier-II/challenger banks in the US and Europe, which are increasing their tech spending on a low base, driving higher BFSI revenue growth for the mid-caps,” said Nayak. “On the other hand, while tech spends for most of the large banks are growing high single-digits to mid-teens, some of them are insourcing their tech spend, demanding AI-related productivity benefits passthrough, driving vendor consolidation, which may have weighed on the BFSI segment growth of large caps vs the midcaps.”
Large financiers such as JP Morgan, Citibank, and Morgan Stanley have already set-up back-end tech centres in the country and are increasing their headcount in those centres to more than 100,000 cumulatively. These global capability centres (GCCs) are cutting reliance on the country’s largest tech services firms by handling much of their tech work in-house.
“However, weaker BFSI segment growth of large caps (vis-a-vis midcaps) is also attributed to the high base effect. Moreover, mega deals with longer tenures, primarily won by large-caps, ensure low to mid-single digit growth in the BFSI segment, while the low base effect and increasing share of wallet in existing customers coupled with net new work in new clients, acquisitions, drive higher (low to mid teens) growth in midcap IT BFSI revenues,” added Nayak.
A second expert said the mid-caps were in a “sweet spot” when it came to winning contracts from banks and financial institutions.
“Firms such as Coforge, Persistent and Mphasis can often get closer to the client, move faster and be more flexible commercially, while many of the large providers are still carrying delivery models designed for an era when scale and headcount were major competitive advantages,” said Phil Fersht, chief executive of HFS Research.
Shift in IT spending
For now, this trend of outsourcing large amounts of IT work to the big five may see a shift.
“The large-cap may retain $500 million of legacy work, but the next $50 million or $100 million of strategic investment may be competed for very differently. That is what the large providers need to worry about. If mid-caps consistently capture a disproportionate share of new discretionary spending, their higher growth rates become structural rather than cyclical,” added Fersht.
In terms of share, revenue from financial institutions makes up almost a third for the big five firms including Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd.
Of the mid-caps, LTM Ltd, Coforge Ltd, Mphasis Ltd, Persistent Systems Ltd, and Hexaware Technologies Ltd get 33-67% of their revenue from banks. Eighth-largest Mphasis Ltd has the highest exposure to financial firms, as it gets about 67% of its revenue from banks, insurance firms, and other financial institutions.
Slower revenue from BFSI players also underlines the broader performance of the country’s tech services firms.
TCS and Wipro ended last fiscal with $30.02 billion and $10.48 billion in revenue, down 0.5% and 0.3%, respectively. While this was TCS’s first full-year revenue decline since listing, Wipro reported its third. Infosys, HCLTech, and Tech Mahindra grew 4.6%, 6%, and 1.9% to $20.16 billion, $14.66 billion, and $6.39 billion, respectively.
On the other hand, the mid-caps grew at a faster clip last year, making it the second year on the trot that their growth outpaced that of their larger peers. LTM, Coforge, Mphasis, and Persistent Systems ended last year with $4.76 billion, $1.87 billion, $1.8 billion, and $1.65 billion, translating to a full-year growth of 6%, 29%, 7%, and 17%, respectively.