Indian institutional investors are increasing holdings in tech firms Cyient and Persistent Systems, betting on foundational AI infrastructure. This trend diverges from foreign investors who have been reducing their exposure to the Indian IT sector.
What Happened
Domestic Institutional Investors (DIIs), including mutual funds and insurance companies, are actively increasing their ownership in Indian IT firms Cyient and Persistent Systems. This shift reflects a strategic bet on companies building the underlying infrastructure for artificial intelligence. While foreign institutional investors (FIIs) have been net sellers of Indian technology stocks over the last two years, domestic funds have stepped in to absorb the supply, signaling a divergent outlook on the long-term potential of India's tech engineering and software services space.
Cyient: A Focus on Hardware Engineering
Cyient is focusing on the semiconductor and hardware side of the AI industry. The firm designs custom chips for AI data centers and develops machine learning processors. To accelerate its capabilities, Cyient recently entered an agreement to acquire TAO Digital for $218 million. Despite this expansion, the company has faced financial pressure, including a decline in EBITDA and net profit in FY26. However, DIIs have raised their stake in the company to over 41%, up from 27% two years ago. The stock is currently trading at a price-to-earnings (P/E) ratio of 21x, which is lower than the industry median, though it remains about 64% below its record high seen in December 2023.
Persistent Systems: Growth and Integration
Pune-based Persistent Systems is taking a different path by focusing on software modernization for the banking and healthcare sectors. The company is currently targeting a revenue milestone of $2 billion by FY27. A major part of its strategy involves the acquisition of Nagarro for 1.27 billion euros, a move designed to strengthen its European footprint. While the company has maintained strong financial performance, with five-year compound annual growth rates of 29% in sales and 33% in net profit, its valuation remains higher than the industry median at a P/E of 39x. The stock is currently trading 30% below its all-time high, reflecting investor caution regarding the large acquisition and potential integration challenges.
Business Risks and Considerations
For investors, these companies represent two different investment styles. Cyient is effectively a turnaround play where success depends on the execution of its AI hardware pivot and the integration of new acquisitions. The company must navigate recent profit margin pressures to prove its strategy is working. Persistent Systems, conversely, is a high-growth, debt-light business that must now manage the execution risks associated with its massive European expansion. Because the company is trading at a valuation premium compared to many peers, its ability to maintain consistent growth while integrating Nagarro will be closely watched.
What Investors Should Track
Investors may monitor the progress of Cyient’s AI hardware division and whether its margins improve in upcoming quarters. For Persistent Systems, the key monitorable is the successful integration of Nagarro and how this impacts its overall return on capital and debt levels. In both cases, the future performance will depend on the actual demand for AI infrastructure services versus the current market excitement.