BofA selective on midcap IT: Coforge named Sole ‘Buy’ but Mphasis, Persistent rated ‘Underperform’ 

BofA initiated coverage on Coforge Ltd. with a Buy but the brokerage house is cautious on Mphasis, Persistent Systems and also LTIMindtree.

The brokerage said AI remains a long-term opportunity across the sector, but companies that combine strong execution with reasonable valuations are likely to deliver superior shareholder returns.

Why Coforge is BofA’s preferred pick

BofA initiated coverage on Coforge with a ‘Buy’ rating and a target price of Rs 1,725, implying an upside of about 16%. BofA said Coforge offers the strongest balance of execution, growth visibility and valuation among the companies under its coverage.

The brokerage expects the company to deliver organic revenue CAGR of about 12% between FY26 and FY29, supported by a healthy order backlog across banking, financial services, government and travel. It also expects earnings growth to be supported by both revenue expansion and margin improvement.

BofA said Coforge’s disciplined acquisition strategy further strengthens its investment case. The brokerage believes the company has consistently integrated acquisitions while protecting shareholder returns, a capability that becomes increasingly valuable in a slower industry growth environment.

It also expects tighter working capital management and better collections to improve the free cash flow-to-profit ratio from around 70-80% to nearly 100%, while operating leverage and disciplined cost management support margins.

Artificial intelligence is another area where BofA sees the company building a competitive advantage through industry recognition and investments in domain-specific AI solutions.

“We see Coforge as a mid-sized IT services firm with an established presence in large industry segments such as banking and travel, supported by an effective blend of strong sales capabilities, solid execution and industry specialization,” BofA said.

“We view its approach to cash flow as measured, alongside an ability to assimilate acquisitions in an accretive manner,” the brokerage added.

“Multiple leadership ratings by industry consultants over the past 12 months indicate a solid foundation in building AI credentials,” BofA said.

Why Mphasis receives only a ‘Neutral’ rating

BofA said Mphasis Ltd. has emerged from a difficult period and is positioned for better growth, but believes much of that recovery is already reflected in the stock’s valuation.It initiated coverage on Mphasis with a ‘Neutral’ rating and a target price of Rs 2,440, implying an upside of about 8%.

The brokerage said company-specific challenges related to large client issues, contract rationalisation and exposure to the US mortgage market have largely subsided. It expects Mphasis to benefit from its banking and financial services franchise, which contributes 67% of revenue, as spending in the sector remains relatively resilient.

However, BofA believes the company still needs to diversify beyond BFSI while demonstrating that AI-led modernisation can become a meaningful revenue contributor.

The brokerage noted that nearly 69% of Mphasis’ pipeline now comes from AI-led business transformation opportunities and that the pipeline has expanded 38% year-on-year. Even so, it believes these initiatives are still at an early stage.

“We think these company-specific headwinds are now behind it and the company’s favourable positioning in the BFSI sector should support stronger revenue growth over the next three years,” BofA said.

“Success in its offerings around AI-led modernization is the next source of outperformance,” the brokerage added.

“It is still in the early stages of making AI modernization a meaningful growth driver,” BofA said.

Why Persistent Systems gets an ‘Underperform’

Persistent Systems was initiated with an ‘Underperform’ rating and a target price of Rs 4,875, implying limited downside from the reference price. BofA acknowledged Persistent Systems’ strong operating performance but believes its premium valuation limits further upside.

The brokerage expects Persistent to remain one of the fastest-growing companies in the sector, forecasting organic revenue CAGR of around 14% over FY26-FY29 after delivering 17% over the previous three years.

It highlighted Persistent’s strengths in AI-led digital engineering, data modernisation and enterprise transformation, as well as its proprietary AI platforms, SASVA and iAURA.

However, BofA believes enterprise adoption of AI-led intellectual property platforms remains at an early stage. It also expects the company to demonstrate broader scalability beyond its core banking and healthcare franchises while justifying its premium valuation.

“We see Persistent Systems as a mid-sized IT services firm focused on providing AI-led digital engineering, data modernization and transformation services to large enterprises,” BofA said.

“We find the company’s IP-led approach through SASVA and iAURA encouraging because it provides a path to balance growth with profitability,” the brokerage added.

“We think the company’s growth outlook falls short of justifying the current valuation premium,” BofA said.

Why LTIMindtree remains an ‘Underperform’

LTI Mindtree received an ‘Underperform’ rating with a target price of Rs 3,910, implying an upside of about 3%. BofA said LTIMindtree has delivered encouraging operational progress under its new leadership, outperforming larger peers on revenue growth, expanding margins and improving large deal wins during FY26.

The brokerage said management has strengthened execution through greater focus on large deals, cost optimisation and expansion beyond its traditional strengths.

However, it believes the next stage of growth will be more demanding as competition intensifies for large transformation contracts and investments in AI capabilities increase.

BofA expects AI investments and expansion into new service offerings to take priority over profitability during the next few years. It also believes meaningful benefits from the company’s refreshed five-year strategy will take time to materialise.

“We see LTIMindtree as a fast-scaling global IT services firm delivering cloud, digital transformation and AI services across a diverse set of industries,” BofA said.

“Focus on a dedicated team for winning large deals and expanding the company’s footprint beyond its traditional strengths has delivered a good start,” the brokerage said.

“We expect the company to prioritise growth and AI participation over profitability as it executes its long-term strategy,” BofA added.

AI opportunity alone is not enough

BofA said every company under its coverage is investing aggressively in artificial intelligence, digital engineering and enterprise modernisation. However, the brokerage believes those investments alone will not determine future stock performance.

Instead, it expects companies that successfully convert AI investments into sustainable revenue growth, maintain execution discipline and trade at reasonable valuations to outperform as enterprise technology spending gradually improves.

Conclusion

BofA’s initiation of coverage highlights a clear divide within the mid-cap IT sector. The brokerage believes Coforge offers the strongest investment case because of its balanced combination of execution, diversified growth drivers, disciplined acquisitions, improving cash generation and expanding AI capabilities, making it the only stock in the group to receive a ‘Buy’ rating. 

While it expects Mphasis to benefit from improving fundamentals, it believes much of the recovery is already reflected in the valuation. It also recognises Persistent Systems’ engineering strengths and LTIMindtree’s operational progress, but believes their current valuations and execution challenges leave limited room for upside, resulting in ‘Underperform’ ratings on both stocks.

Disclaimer: The research insights, ratings, and target prices detailed above are sourced from a third-party brokerage report and do not reflect the independent views or recommendations of this publication. This content is intended for informational and educational purposes only and does not constitute financial advice, an investment recommendation, or an offer or solicitation to buy or sell securities. Investors should note that the IT services sector is subject to rapid technological shifts, client spending volatility, and macroeconomic risks, and they should consult a SEBI-registered financial advisor before making any investment decisions.

This disclaimer has been generated using AI to support user well-being and responsible content consumption.