Indian midcap IT bulks up for a heavyweight fight

**Akshara** (0:04)
In today's episode, we'll break down two important stories. First we'll talk about Indian mid-cap IT bulking up for a heavyweight fight. And then we'll talk about the world's energy report card being out. Welcome back to The Daily Brief by Zerodha where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara and today is Thursday, 2nd July. Coming to the first story.
So earlier this week, Persistence Systems, a company we've covered all too often in our coverage on India's mid-cap IT subsector, announced a blockbuster billion-dollar acquisition of Germany-based digital engineering firm Nagaro. Now this is the biggest such deal in the company's history. Nagaro closed nearly a billion dollars of revenue in the calendar year of 2025 or CY25, while Persistent made 1.65 billion dollars in FY26.
With this deal, Persistent might effectively bolster its top line by more than 65%.
But Persistent is no outlier. A few months ago, we covered GoForge's acquisition of US-based software engineering firm Encorah. And similarly, Emphasis also bought a 26% stake in an IT services firm that specializes in providing solutions to the global capability centers of MNCs. And of course, the larger arrivals of these firms, HCL Tech, Wipro, and Enforces, haven't been sitting silently either. Now, much of this trend seems to have been caused by a single earthquake that rhymes with large language models. And these acquisitions arrive against the backdrop of the nifty IT index hitting a three-year low just two days ago because of AI. And mergers and acquisitions usually have a mixed record of success. But right now, they've become one of the most sure-shot ways for IT firms to acquire the one factor that AI might make even more valuable, domain expertise. So with that, let's look at the persistent Nagaro deal and how it fits in the broader trend of where Indian IT is headed. Now, on one side of the equation is a company that, impressively, has only grown for 24 quarters consecutively. And if you're unfamiliar with what Persistent does while they're an IT services firm, they're not a body shopping business like much of Indian IT is often characterized. So they work with clients closely and actually help design and build software for them, not just provide maintenance and support. They also help conduct full end-to-end enterprise modernization projects, which by its nature involves knowing the nitty gritties of the company's technology stack. Now, Persistent's business is broadly divided into three categories of clients. So the biggest category, making up 39 percent of Persistent's revenues, is software or high tech, which represents some of the largest tech companies in the world, like Microsoft, who is also one of Persistent's earliest customers, Salesforce, and Amazon. They help develop features on platforms like Azure and AWS, which eventually get used by clients in other industries that adopt these platforms. And Persistent dominates this subsector in India. And it's this exact area that also puts the company comfortably close to the AI boom and its impact on how those platforms are built. In our past coverage, we highlighted how Persistent has been much faster in AI adoption compared to its larger peers. Now, the other two categories are health care, which occupies a 26% share, and banking or financial services, which makes 34.5% of revenues.
But these two categories are also amongst the most competitive. Many of the deals that IT firms are fighting for today lie here.
While Persistent's high shares in these categories, especially high tech, is a sign of their client relationships only deepening, it also creates an over-reliance on just a few sources of revenue. Now in contrast, Coforge, their peer, is much more diversified. Now Persistent also shows signs of over-reliance when it comes to geography. Over 81% of its business comes entirely from one country, the USA.
But considering Big Tech and Big Pharma both reside there, that's as unsurprising as it is risky. Additionally, its top 10 clients make up over 42% of its revenue.
Now on the other side of this equation is an IT services firm with Indian roots that's publicly listed in Germany. So Nagaro started in 1996, six years after Persistent, by an Indian named Manas Human and only listed publicly in 2020 And the structure of the business today is such that it seems to fill persistence gaps. For one, the biggest industrial category for Nagaro is automotive and manufacturing. It makes up 26% of the business and this is followed by consumer products and retail, with a 13% share. They've worked with companies like Siemens, Maruti Suzuki, European rental platform Sixt, and even the airports of Dublin and Vienna. Unsurprisingly, given where most of these clients lie, Europe is its largest geography, contributing 42% of revenues. North America makes up nearly 35%, while the rest of the world is at nearly 23%. And Japan makes up a good chunk of this. Clearly, with this acquisition, Persistent places its feet firmly in Europe and Japan. Geographies that, as we have talked about before, have only become more important this year in the wake of unstable American policies. But it also gets capability in industries that it had little to no presence in. But is that worth the whopping 140% premium that Persistent paid for a slowing business like Nagaro? See, Nagaro's fortunes haven't been very upbeat of late. In 2022, Nagaro's revenues exploded by 56% year-on-year and not coincidentally.