2 IT stocks to buy for 25-26% upside; target for TCS ahead of Q4 results

Ahead of TCS Q4 results on Thursday, Elara Securities in a fresh note on IT sector said Infosys Ltd and Mphasis Ltd are its two top IT picks, with 25-26 per cent potential upsides. The domestic brokerage said Infosys is its preferred large cap pick due to stable management and top revenue per employee among large caps in the past four years. Mphasis, it said, stands out amid robust technology spending across BFSI. It said banks tech spends in the US rose 9 per cent YoY in the December quarter.

Why IT stocks were falling?

To recall, Nifty IT Index has corrected 23 per cent since February 3 , with large-cap and midcap IT stocks having corrected 20 per cent and 21 per cent, respectively. Elara said market prices have since stabilised of late, as concerns of India’s IT companies losing significant business to new firms and AI tools appear to have subsided. 

But it noted that IT companies continue to grapple with productivity pass-through pressures. 

"Clients continue to demand higher productivity gains not just from new contracts but also from existing ones as per our understanding. This dynamic is poised to drive revenue deflation in the near to medium term for companies. We expect IT companies to optimise costs by further moderating hiring, and emphasizing revenue per employee productivity, which should stabilize profitability," Elara said. 

Infosys, Mphasis top IT picks

Among its two top picks, Elara said Infosys was ranked 1 in the Forrester Wave AI technical Services Q4CY25 report in terms of strategy. Infosys, it said, is seen offering superior low double-digit earnings growth against peers during FY26-28. 

"At 16 times FY28E earnings, valuation remains attractive. We value Infosys at 19 times FY28E earnings to arrive at a lower target price of Rs 1,600 per share. In the midcap space, Mphasis stands out amid robust technology spending across BFSI. With 60 per cent-plus revenue mix from BFSI, it is well-positioned. We expect an CAGR earnings of 16.5 per cent during FY26-28E; the stock trades at 17 times FY28E earnings, and we value it at 21x on FY28E earnings to arrive at a lower target of Rs 2,760 per share," it said.

TCS target price

For TCS, Elara has 'Accumulate' rating and a target of Rs 2,700. The brokearge sees 10-16 per cent upside on LTIMindtree and Tech Mahindra, both with 'Accumulate' rating.

ELara said IT companies face potential revenue deflation from AI led productivity gains in the near to medium term. IT companies with higher exposure to time & materials (T&M) contracts will likely feel the most impact. 

T&M contract mix, it said, is around 46-52 per cent for the companies which report this data. 

AI-driven revenue compression varies by the extent of productivity pass-through to clients, it said noting that companies with 50 per cent mix of T&M contracts could see portfolio-level deflation in the range of 1-3 per cent. For now, the brokerage has not factored any impact of AI deflation in our estimates.