HCL Tech, Infosys, TCS, LTIM: Jefferies cuts targets for Indian IT stocks by up to 33%

Jefferies has cut its target prices by up to 33 per cent on Indian IT stocks, saying the artificial intelligence may structurally change IT business mix towards consulting and  implementation while shrinking managed services. This, it said, would not only increase cyclicality but also require a change in talent and operating model, thus adding risks.

The foreign brokerage said despite 16 per cent drop, IT stocks still offer higher downside than upside. It lowered its earnings per share estimates for IT names by 1-4 per cent, downgrading Infosys Ltd, HCL Technologies Ltd and Mphasis Ltd to 'Hold' and LTIMindtree (LTIM), Tata Consultancy Services Ltd (TCS) and Hexaware Technologies Ltd to 'Underperform'. Jefferies said Coforge, Sagility and IKS remained its preferred picks.

"In our view, maintaining the long-term revenue growth trajectory in line with previous decade is the best case outcome for IT firms. The worst case outcome could be 3 per cent lower revenue CAGR over FY26-31 (15 per cent cumulative deflation) followed by no growth beyond FY31. In the best case, PE multiples could range between 14-22x for large IT firms with Infosys, HCLT and TCS offering c.15 per cent rerating potential, and 23-42 times for mid-sized IT firms with Hexaware/IKS offering 35-45 per cent rerating potential," Jefferies said.

In its worst case scenario, stocks could derate by another 30-65 per cent with Wipro having the lowest and Coforge having the highest derating potential. Assuming 3 per cent lower growth over FY26-36 and 1 per cent lower terminal growth, PE multiples could still derate by 10-35 per cent for large IT firms and up to 15 per cent for mid-sized IT firm under the worst case scenario, it said.

Jefferies noted that Nifty IT has fallen 14 per cent and underperformed Nifty50 by 12 percentage points in 2026 so far. While the December quarter results led to earnings upgrades for nearly all IT firms, recent developments in Al have raised concerns on the medium- to long-term growth outlook for IT firms, it said.

"This suggests that stock performance will more likely be tied to the longer-term business outlook rather than earnings delivery in the near term," it said.

Jefferies has suggested fresh targets of Rs 1,290 for Infosys, Rs 1,390 for HCL Tech, Rs 2,450 for Mphasis, Rs 4,300 for LTIM, Rs 2,350 for TCS and Rs 460 for Hexaware Technologies.

Following the development, Hexaware Technologies tanked 3.45 per cent to Rs 503.50. Mphasis dropped 2.57 per cent to Rs 2,312.50. Infosys Ltd shares fell 2.13 per cent to Rs 1,324 apiece. LTIM declined 1.9 per cent to Rs 4,795. HCL Technologies was down 1.22 per cent at Rs 1,419.50. TCS shed 0.79 per cent to Rs 2,665.30. 

While IT firms should remain relevant, the nature of their client engagements is likely to structurally shift towards advisory and implementation with application managed services (22-45 per cent of revenues) seeing sharp revenue deflation, Jefferies said.

"The extent and timing of this deflation are likely to exacerbate as Al tools become better. Moreover, rising share of advisory and implementation engagements would not only increase the cyclicality in revenue growth, but will also demand an overhaul of talent strategy and operating models. Such changes in operating models are not easy to execute and investors must factor in this risk in PE multiples," it said.