Infosys, HCL Tech, LTIMindTree among Anand Rathi's top IT picks amid AI rout; check target

The Indian IT sector is navigating a significant transition, suggests a report from Anand Rathi Share & Stock Brokers. The industry has emerged from a period of subdued discretionary spending and regulatory headwinds, with notable volatility in early 2026. Nifty IT has experienced a steep decline, falling by 18 per cent over the past year, underscoring the sector's challenges during this transition.

AI adoption is now a pivotal force. Partnerships such as Infosys-Anthropic and HCL & TCS-OpenAI collaborations signal a shift in industry focus. IT firms are increasingly positioning themselves as large language model (LLM) implementation partners, similar to their roles during the rise of cloud technologies and system integration.

Anand Rathi’s core thesis is that "the AI cycle is pivoting from ‘building capacity’ to ‘proving payback’ and that shift is innately services heavy." This transition is expected to be service-centric, as enterprise clients scrutinise return on investment (RoI) more closely in the wake of significant capital expenditure by hyperscalers.

The brokerage projects: "We expect sector revenue growth to rebound to ~4.9% in FY27e and sustain growth in the medium term. Key risks are macro softness, pilots scaling-up slower, faster-than-expected AI automation and hallucination/trust barriers to enterprise adoption. We are constructive yet selective, favouring scaled vendors with enterprise deployment credibility."

Over the past three years, Indian IT faced a spending recession marked by "soft discretionary budgets, stretched deal cycles and preference for optimisation over transformation. Emergence of GenAI intensified the derating, as markets saw AI as deflationary force for services, compressing effort-based revenue models and concentrating AI spend in hardware. Launch of Claude Cowork and agentic plugins in early 2026, followed by Claude Code’s COBOL modernisation capability triggered sharp selloff in IT services and SaaS names, as investors feared AI agents could automate core legacy workloads."

Now, the sector is entering a new phase. Anand Rathi states: "‘Installation Phase’ to ‘Deployment Phase’: Our core thesis is AI cycle pivoting from ‘building capacity’ to ‘proving payback’, & the transition is services heavy." This is evidenced by significant investments by the top five global hyperscalers, who "spent >$400bn capex in CY25. While CY26 capex is seen at ~$705bn, RoI scrutiny is intensifying, with boards & CFOs questioning returns."

Historical parallels (railways & fibre) confirm a recurring pattern, with builders over-investing first, rents collapsing as supply arrives, and winners being those who monetise installed capacity without risking balance sheets.

Looking ahead, Anand Rathi said, "We frame AI as an ‘inflection bubble’ where the technology is real & adoption is durable, but the infrastructure layer faces oversupply, overleverage & overspending ahead of monetisation. Three of the classic four Os (Oversupply, Overvaluation, Overspend & Overleverage) of a bubble are present; only overvaluation remains less intense than historical peaks."

"The necessary condition for a ‘burst’ is not demand collapse but credit tightening in the over-levered infra layer, which forces the ecosystem to shift from ‘build first’ to ‘monetise now'," Anand Rathi adds, mentioning Infosys Ltd (Target Price: Rs 1,547), HCL Technologies Ltd (Target Price: Rs 1,585), LTI MindTree Ltd (Target Price: Rs 5,305) as its top largecap picks, while Persistent Systems Ltd (Target Price: Rs 5,571) and Mphasis Ltd (Target Price: Rs 2,807) as its top picks from midcap space.