TCS, Infosys, LTM, Coforge: Should you buy IT stocks among sectoral headwinds?

Indian IT stocks are having a tough time lately amid the rising AI challenges with major IT player hitting multiyear lows, with select bluechips from the IT space hitting their fresh lows on Thursday. Nifty It index has dropped nearly 33 per cent from its 52-week high. However, they managed some recovery on Friday which select stocks rising up 5 per cent for the day.

Kotak Institutional Equities said Indian IT companies' Q4FY26 results were mildly disappointing after a relatively stable run in recent quarters, with small misses on growth, unexciting TCV and guidance below expectations. Kotak said GenAI-led revenue deflation is emerging as a real drag, and progress in AI-led opportunities is not yet enough to offset that pressure.

According to Kotak, revenue growth missed estimates marginally for most companies, signalling incremental demand stress. Tata Consultancy Services Ltd (TCS) led Tier 1 growth with 1.2 per cent QoQ growth, including 0.8 per cent organic growth, followed by Tech Mahindra Ltd at 0.6 per cent.

Revenue fell sequentially for Infosys Ltd, HCL Technologies Ltd and Wipro Ltd. Mid-tier firms outperformed Tier-I peers with 1.2 per cent to 3.4 per cent growth, except Hexaware Technologies Ltd, which declined due to client-specific issues. Kotak said EBIT margins improved year-on-year for most companies, helped by cost optimisation and rupee depreciation.

PL Capital, in its recent report said the Indian IT sector faces a sharper AI challenge as enterprise engagements become more dynamic and clients embed AI into decision-making frameworks. PL Capital said this is increasing demand for quality judgement at scale and reducing reliance on individual project deliveries.

According to PL Capital, the industry is moving towards high-end work such as decision accountability, risk tiering and AI governance. The report said firms focused on non-commoditised services, including data science and decision architecture, and continuous-service models are better placed as clients seek clearer costs and tangible value.

Coforge Ltd, TechM, LTM Ltd and TCS led the gains, while HCL Tech and Hexaware saw sharper declines. Deal wins were mixed, with some companies reporting lower YoY TCV because of a high base. Kotak said that stronger new TCV growth will be needed to offset deflation in existing business, said Kotak.

Kotak said guidance remained subdued across most companies. HCL Tech, Infosys and Wipro issued lower-than-expected outlooks Kotak also cut FY2027-28 dollar revenue estimates for many firms by 0-3.2 per cent, though rupee depreciation supported EPS upgrades. Its top picks are TCS, TechM and Infosys among top IT firms, while Hexaware and Coforge among mid-tier names.

PL Capital has a 'buy' rating on Coforge (Target price: Rs 2,020), Cyient (Target price: Rs 950), Infosys (Target price: Rs 1,570), KPIT Technologies (Target Price: Rs 880), Latent View Analytics (Target Price: Rs 450), Mphasis (Target Price: Rs 3,000), Persistent Systems (Target Price: Rs 6,400), TCS (Target Price: Rs 3,450) and Tech Mahindra (Target Price: Rs 1,660).

It has given a 'hold' rating on Fractal Analytics (Target Price: Rs 1,040), L&T Technology Services (Target Price: Rs 3,610), LTM (Target Price: Rs 4,560), Tata Elxsi (Target Price: Rs 4,800), Tata Technologies (Target Price: Rs 560) and Wipro (Target Price: Rs 200). HCL Technologies (Target Price: Rs 1,300) is the only IT stock with 'reduce' rating from PL Capital.