Easily. IU has been around longer. Many people living in Indy went to IU, creating a bond that just doesn't happen with a professional team. IU has a rich history and pretty good team right now as well.
I'm not saying IU is bigger than the Pacers in the city as I have no idea. But just because one is college and one is pro, I don't think that really matters in terms of popularity. Even if the Bobcats start becoming contenders, I don't see them ever taking over UNC and Duke.