TCS, Infy, HCL Tech, LTIM, Coforge: Two sided pressure on IT stocks, check latest targets

The Indian IT services sector is facing significant challenges in 2026, as risks emerge from both ends of the current AI technology cycle, said Nirmal Bang Institutional Equities. It highlights two possible scenarios- rapid AI adoption could reduce demand for traditional services, while a failure of AI to deliver expected returns may lead to tighter technology budgets worldwide.

In the first case, accelerated AI use is expected to compress effort-based billing, especially in software engineering, as generative coding and testing reduce manpower needs. Enterprises will focus more on pricing and outcomes, which may slow revenue growth for IT service providers.

The report estimates that while spending on AI intelligence could rise to 4.2 per cent of global IT expenditure by 2028, overall IT services spending may decline from 30.9 per cent in 2025 to 27.2 per cent in 2028. This reflects a shift towards data centre expansion and AI infrastructure.

Conversely, if AI adoption slows or fails to show clear returns in 2026, Nirmal Bang warns of significant budget tightening. Large investments by hyperscalers into AI infrastructure, supported increasingly by debt, may face scrutiny, causing a correction in the technology ecosystem.

Despite potential cost reductions leading to increased demand for clearing legacy technology debt and building AI foundations, the report notes that large IT companies have yet to show strong revenue momentum. The possibility of a near-term AI super cycle appears low.

On the valuation front, Nirmal Bang uses its CORE framework to assess company readiness. It sees Tata Consultancy Services Ltd (TCS) as well positioned for long-term value due to early AI adoption and strong client relationships, recommending a buy despite expected slower near-term earnings growth.

Infosys Ltd is also rated a buy and top large-cap pick, benefiting from partnerships like that with Anthropic and maintaining an asset-light approach. HCL Technologies Ltd is recommended for its strong R&D and data centre focus. For mid-caps, Persistent Systems Ltd and Coforge Ltd are favoured for their agility and track record in business turnaround and growth.

Nirmal Bang has a 'buy' rating on TCS (Target Price: Rs 3,046), Infosys (Target Price: Rs 1,746), HCL Technologies (Target Price: Rs 1,683), Persistent Systems (Target Price: Rs 6,977) and Coforge (Target Price: Rs 1,667), suggesting up to 37 per cent upside. It has a 'hold' rating on Wipro Ltd (Target Price: Rs 197), LTIMindTree (Target Price: Rs 4,468) and Mphasis Ltd (Target Price: Rs 2,420).