TCS, Infosys, Coforge, TechM, LTM, KPIT shares: Opportunity or value trap? Target prices

A sharp fall in shares of Tata Consultancy Services Ltd (TCS), Infosys Ltd, Coforge Ltd, Tech Mahindra Ltd, LTM Ltd, Persistent Systems Ltd and KPIT Technologies Ltd, among other IT names, surprised many on Wednesday. TCS plunged 9 per cent to Rs 2,225.45. Tech Mahindra declined 6.11 per cent to Rs 1,475. Infosys was the third biggest loser on Sensex, falling 4.05 per cent to Rs 1,219.25. These IT stocks fell after seeing recovery of late, as analysts noted deflation risks for services firms can increase, with US banking and financial services (BFS) firms reporting a strong productivity surge in select cases of agentic software development. India-listed vendors also face pressure from a resurgent Cognizant, they noted. 

The environment is still conducive for challengers, but they require strong tech and domain capabilities along with robust execution, Kotak Institutional Equities said in a note. 

"Vendor consolidation initiatives, demand for AI savings from services vendors and GCC/insourcing shift present additional headwinds. Savings from these initiatives are used to fund new tech investments. Several firms are pursuing GCC expansion. Layoffs announced by select BFS firms need to be monitored for any impact on vendors. Finally, the macro environment, while healthy, has shown incremental deterioration due to the Middle East conflict," Kotak said. Here are Kotak's target prices on Coforge, KPIT Technologies Ltd, Cyient, Hexaware Technologies, LTTS, Mphasis, Persistent Systems, Tata Elxsi and other IT stocks. 

YES Securities said valuations across the IT sector have corrected sharply following recent AI/tooling developments and rising concerns around traditional revenue deflation, productivity-led pricing pressure and disruption to legacy services.

While FY27 is likely to remain a transition year with muted discretionary recovery and continued productivity pass-throughs, improving revenue conversion trends and strong deal pipelines support medium-term growth visibility, it said.

"At 16.8 times 1-year forward P/E for Nifty IT, sector valuations appear attractive. Tech Mahindra remains our top pick in the sector, supported by a sustained margin turnaround, strong deal momentum, improving revenue conversion and continued execution under its turnaround strategy," it said.  This brokerage has 'Buy' on TCS (target: Rs 3,534), Infosys (target: Rs 1,701), Wipro (target: Rs 271), TechM (Rs 1,898) and LTM (Rs 6,160).

Historically, Nifty IT traded at a median PE of 22.2 times. Today, the sector is available at around 20 times earnings, placing valuations below long term averages and near levels typically seen during periods of pessimism, said Apurva Sheth of SAMCO Securities.

Historically, similar valuation zones have emerged during major global slowdowns such as the Global Financial Crisis, the Eurozone debt crisis, and the recent post-pandemic technology correction. In each instance, investor concerns revolved around slowing client spending and weaker demand visibility.  The current discount reflects fears of delayed technology budgets, economic uncertainty in the US, and concerns around the impact of AI on traditional IT services.

"However, valuations are now pricing in a meaningful amount of caution. The key question for investors is whether earnings are deteriorating or whether market sentiment has become excessively negative," Sheth said.

He noted that when profits continue to grow while valuation multiples contract, future returns often become increasingly dependent on whether sentiment eventually catches up with fundamentals.

"Whether this becomes a value opportunity or a value trap will ultimately depend on global technology spending. But from a historical perspective, Nifty IT appears to be trading from a position of pessimism rather than optimism. And that is point of maximum opportunity too," Sheth said.