Kotak Institutional Equities (KIE) has projected a potential 18-35% decline in stock prices of IT companies from current levels if the US, a major markets for these entities, faces a moderate recession in near term.
“We estimate a 22-38% downside to the current FVs (face value) and an 18-35% downside compared to CMPs (current market price) for stocks under coverage, assuming no tariff on services exports. TCS, Infosys, HCLTech and Coforge have lower downside,” KIE said in its report, ‘When do IT stocks bottom out in case of a recession?’
The Nifty IT index has declined nearly 25% in the last three months. Tariffs imposed by the US government are likely to indirectly impact the growth of IT companies, as global clients may further reduce discretionary technology spending amid economic pressures.
The report said the technology ecosystem is more concentrated than before, dominated by a few hyperscalers. This structural change could impact distribution of opportunities.
“We estimate a dollar revenue growth decline of 2-5.1% for Tier-1 IT in FY2026E, followed by 1-5% revenue growth in FY2027E. We expect a higher revenue decline for companies more exposed to retail and manufacturing and discretionary spending,” the report said. Margin pressures are also expected to persist due to pricing pressures, rupee appreciation and limited scope for efficiency improvements.
According to KIE, the current recessionary set-up differs in several ways – retail and manufacturing sectors are likely to be hit harder than financial services, government actions are more likely to induce, rather than rescue, the economy, and the pace of change is expected to be quicker.
KIE also pointed to the possibility of limited monetary support due to inflation concerns in a high-tariff regime and the weakening of the US dollar potentially limiting rupee depreciation benefits.
“The velocity of change and uncertainty are a lot higher,” the report said. “Monetary policy support could be limited due to the risk of heightened inflation in a high-tariff regime.”
From a technology standpoint, the report highlighted that the recession could occur amid an ongoing tech upgrade cycle and increasing AI adoption. While some spending may persist, growth will likely be subdued compared to previous post-crisis rebounds.
Stock-wise potential impact
TCS is seen as relatively better positioned with an 18% downside to fair value compared to current market prices.
Infosys, HCLTech and Coforge also have relatively lower downside of 19-21%. Tech Mahindra and LTIMindtree face greater cuts of 35-38% in fair value compared to base-case assumptions, owing to their exposure to discretionary spending and sectors like retail and manufacturing.
“Our current estimates and assigned multiples assume a slowdown in global economic growth, but not a recession,” it said. “We have twice cut estimates, multiples and FVs for IT services stocks under coverage in the last 45 days.”
Further complicating the outlook, KIE said discretionary spending, which is typically cut more aggressively than managed services, remains a vulnerability for firms like Infosys and Wipro. “Infosys and Wipro have higher exposure to discretionary, making them vulnerable,” the report said, while noting that “TCS and HCLTech have higher managed services exposure on a relative basis.”
FY2027 recovery outlook
Recovery in FY2027 is expected to be modest. “We assume 3.7-4.5% revenue growth in FY2027E, the year of recovery, for TCS, Infosys and HCLTech, lower than normalized growth rates,” KIE said.