Coforge, Hexaware, TechM, HCL Tech: Outsized gains possible; IT stocks to buy
MOFSL’s top picks to play the next AI cycle remained HCL Technologies and Tech Mahindra among large caps, and Hexaware Technologies and Coforge among midcaps.
- Dec 17, 2025,
- Updated Dec 17, 2025 7:59 AM IST
Motilal Oswal Financial Services (MOFSL) on Wednesday said uncertainty persisted around the timing and strength of a recovery in the IT services sector, but it believed the sector was nearing a cyclical bottom, with risks skewed to the upside. The brokerage reiterated that early signs of an AI-services inflection were beginning to emerge at the enterprise level, even as traditional demand was expected to remain soft over the next three to four months.
MOFSL’s top picks to play the next AI cycle remained HCL Technologies and Tech Mahindra among large caps, and Hexaware Technologies and Coforge among midcaps. The brokerage said the December quarter was likely to be a non-event, with clearer signals expected to emerge around March-April 2026 as budgets reset, commentary from US banking clients stabilised and early AI implementation data points became visible.
Since upgrading the IT services sector in November 2025, MOFSL said investor discussions continued to revolve around whether earnings had fully bottomed out, the timing of GenAI-led growth, the risk of deeper revenue deflation, and whether large caps or midcaps would lead the next phase of growth. While consensus remained cautious, MOFSL said most near-term negatives, including discretionary budget pressure, furloughs and deal delays, were largely reflected in earnings estimates and valuations, which were at multi-year lows.
MOFSL said cutting-edge large language model providers had begun opening structured channel partnerships with system integrators, signalling that the AI services layer was starting to formalise. The brokerage expected this trend to accelerate over the next six months, with AI services demand likely to inflect during calendar year 2026.
On timing, MOFSL said the sector could re-rate ahead of a visible revenue recovery as AI deal announcements gained traction. It expected limited incremental demand in the near term as clients awaited 2026 budget clarity, followed by improving deal activity in the second half of calendar year 2026 as enterprises scaled AI use cases beyond pilots. According to the brokerage, AI-related deal conversions were expected to begin reflecting in revenues from the second half of FY27, with industry growth accelerating more meaningfully in FY28 as AI deployments moved into full-scale execution.
Addressing concerns around GenAI-driven deflation, MOFSL said revenue compression was inevitable and more disruptive than previous technology cycles. However, it believed the market was underestimating the size of the new services pool emerging from AI implementation. The brokerage estimated that around 10–12 per cent of sector revenues could face deflationary pressure over three to four years, which would gradually be offset by new AI-led services.
MOFSL added that GenAI’s lower delivery intensity reduced the traditional scale advantage of large IT firms, potentially allowing midcaps with strong domain expertise and partnerships to compete more effectively. That said, it expected large, complex transformation projects to continue favouring large-cap players with consulting-led capabilities.
MOFSL said it had upgraded growth assumptions, rolled forward target prices to FY28 estimates and raised valuation multiples by about 20 per cent, reflecting improving medium-term visibility. It reiterated that current valuations already discounted a pessimistic scenario, while any AI-led recovery could drive outsized gains.
Motilal Oswal Financial Services (MOFSL) on Wednesday said uncertainty persisted around the timing and strength of a recovery in the IT services sector, but it believed the sector was nearing a cyclical bottom, with risks skewed to the upside. The brokerage reiterated that early signs of an AI-services inflection were beginning to emerge at the enterprise level, even as traditional demand was expected to remain soft over the next three to four months.
MOFSL’s top picks to play the next AI cycle remained HCL Technologies and Tech Mahindra among large caps, and Hexaware Technologies and Coforge among midcaps. The brokerage said the December quarter was likely to be a non-event, with clearer signals expected to emerge around March-April 2026 as budgets reset, commentary from US banking clients stabilised and early AI implementation data points became visible.
Since upgrading the IT services sector in November 2025, MOFSL said investor discussions continued to revolve around whether earnings had fully bottomed out, the timing of GenAI-led growth, the risk of deeper revenue deflation, and whether large caps or midcaps would lead the next phase of growth. While consensus remained cautious, MOFSL said most near-term negatives, including discretionary budget pressure, furloughs and deal delays, were largely reflected in earnings estimates and valuations, which were at multi-year lows.
MOFSL said cutting-edge large language model providers had begun opening structured channel partnerships with system integrators, signalling that the AI services layer was starting to formalise. The brokerage expected this trend to accelerate over the next six months, with AI services demand likely to inflect during calendar year 2026.
On timing, MOFSL said the sector could re-rate ahead of a visible revenue recovery as AI deal announcements gained traction. It expected limited incremental demand in the near term as clients awaited 2026 budget clarity, followed by improving deal activity in the second half of calendar year 2026 as enterprises scaled AI use cases beyond pilots. According to the brokerage, AI-related deal conversions were expected to begin reflecting in revenues from the second half of FY27, with industry growth accelerating more meaningfully in FY28 as AI deployments moved into full-scale execution.
Addressing concerns around GenAI-driven deflation, MOFSL said revenue compression was inevitable and more disruptive than previous technology cycles. However, it believed the market was underestimating the size of the new services pool emerging from AI implementation. The brokerage estimated that around 10–12 per cent of sector revenues could face deflationary pressure over three to four years, which would gradually be offset by new AI-led services.
MOFSL added that GenAI’s lower delivery intensity reduced the traditional scale advantage of large IT firms, potentially allowing midcaps with strong domain expertise and partnerships to compete more effectively. That said, it expected large, complex transformation projects to continue favouring large-cap players with consulting-led capabilities.
MOFSL said it had upgraded growth assumptions, rolled forward target prices to FY28 estimates and raised valuation multiples by about 20 per cent, reflecting improving medium-term visibility. It reiterated that current valuations already discounted a pessimistic scenario, while any AI-led recovery could drive outsized gains.