Zensar Tech, Persistent Systems: Midcap IT shares surge on hopes of strong Q1; here is why

Shares of small- and mid-cap information technology (IT) shares such as Zensar Technologies, Sagility, Oracle Financial Services Software, Persistent Systems, Mphasis, Coforge, Sonata Software Hexaware Technologies were witnessing strong buying interest on Friday, July 10.

These stocks came under buying interest on expectations of strong quarterly earnings in the first quarter of current financial year after the country's largest IT company Tata Consultancy Services (TCS) surprised market participants by posting better than anticipated June quarter earnings post market hours on Thursday.

The gauge of small- and mid-cap IT shares on the National Stock Exchange - NIFTY MIDSMALL IT index surged as much as 2.37% to hit an intraday high of 9,549.

TCS earnings boost

TCS post market hours on Thursday reported a net profit of ₹13,349 crore in April-June period, marking an annual increase of 5% from ₹12,760 crore in the same period last year on the back of strong revenue from artificial intelligence (AI) services.

The company said that it earned $2.6 billion in revenue from providing AI services, marking a sequential increase of 14%. Strong pipeline of AI deals reported by TCS also gave a boost to fortunes of other companies in IT sector, analysts noted.

TCS said that during the quarter it signed an $800 million AI-led deal with SKF. It also signed a multimillion-dollar agreement with ServiceNow and a multimillion-dollar deal with a Europe-based Fortune Global 50 company.

The Mumbai-based company won an $800 million global AI-led business transformation deal with SKF, redesigning enterprise operations around an intelligent digital core.

The programme establishes AI as the enterprise nervous system, harmonizing fragmented processes, data, and platforms into a self-learning operational backbone that drives predictive decision-making, autonomous optimization, and enterprise-wide agility at scale.

TCS won a deal with a North American utility major for its AI-driven utility transformation into a future-ready, innovation-led operating model. By embracing AI at scale, the utility major is pioneering the development of an enterprise-wide digital ecosystem spanning grid operations, customer experience, asset management, and workforce enablement, while building a scalable foundation with strong AI governance and lifecycle management, the country’s largest IT company said.

What global investment firms said on TCS earnings

Global investment firm Morgan Stanley noted that Q1 earnings were in line to better than expected and Q2 commentary was slightly positive. It also noted that management's commentary on the September quarter was incrementally positive, supported by a $9.5 billion total contract value (TCV) and an annualised AI revenue run rate of $2.6 billion.

Goldman Sachs said revenue growth broadly met expectations, but margins were weaker than anticipated due to wage hikes.

While management expects demand to improve from the September quarter, Goldman Sachs said there is limited evidence so far to support a meaningful recovery and expects HCLTech's and Infosys' guidance to provide further direction for the sector.

As of 11;43 am, NIFTY MIDSMALL IT index was trading 2.15% higher with 19 out of 20 constituents in the measure trading higher.

Among the individual shares, Zensar Tech was top gainer in the NIFTY MIDSMALL IT index, the stock climbed 13% to ₹507.

Sagility, OFSS, Persistent Systems, Sonata Software, Mphasis and Coforge also rose between 2% and 4%.