The Indian IT sector is in the spotlight after US President Donald Trump announced a steep hike in the one-time cost of H-1B visas to $100,000. The move rattled sentiment across the street and dragged down the Nifty IT index by nearly 3% in intra-day trade. All constituents were in the red in the list of IT sector stocks with Mphasis, Persistent, Coforge, LTI Mindtree and Tech Mahindra falling between 3-4%, while giants like TCS, Infosys, Wipro, HCL Tech declining 1-3% intra-day.
At a time when investor nerves are high, here are highlights from Motilal Oswal’s latest report on the sector. They have identified their top picks in the sector and the stocks that they expect are well-poised to tackle the current challenges in the sector.
Let’s take a look at the brokerage’s call on this sector and its preferred stocks –
Motilal Oswal’s top IT picks
According to the brokerage report, stock selection will be key in this uncertain environment. Motilal Oswal prefers a bottom-up approach, focusing on four stocks across large-cap and mid-cap segments.
HCL Technologies: The brokerage maintains a positive view on HCL Tech, calling it an “all-weather portfolio” pick. The company’s diversified presence across verticals and steady execution make it resilient even in downturns.
Tech Mahindra: Motilal Oswal is encouraged by early signs of transformation under the company’s new leadership. “We prefer TECHM, as we see early signs of transformation under new leadership and improving execution in BFSI,” the note said. It also pointed out that margin expectations are more reasonable now, and niche offerings are resonating well with clients.
Coforge: In the mid-cap space, Coforge stands out due to its ability to win large deals despite being a smaller player. The report cited its recent deal with Sabre as an example of how mid-tier IT firms can scale and deliver cost-saving solutions. “The previous downcycle showed that mid-tier firms can thrive in cost-focused environments,” Motilal Oswal observed.
Hexaware: The brokerage also included Hexaware in its top picks, highlighting its consolidation-led growth in the financial services vertical. With pressures in large accounts tapering, the company’s margin trajectory is improving. “Hexaware, meanwhile, is gaining share through consolidation deals in Financial vertical,” the report noted.
Motilal Oswal on IT sector: H-1B fee hike – What it means for Indian IT
As per Motilal oswal report, “Since H-1B lotteries and petitions are typically run in Q4–Q1, the first impact would likely be seen in FY27 petitions.” While the situation is still evolving, the report added that the impact on earnings could be limited, “Expect on-site revenue loss in absence of H-1B; impact could be EPS neutral.”
For Indian IT vendors, reliance on H-1B visas has already been declining. As per the report, “only ~20% of employees are currently based on-site. Of this, 20–30% are on H-1B visas, implying that H-1B holders represent just 3–5% of the active workforce for a typical vendor.” Unlike Big Tech, which accounts for a larger share of fresh H-1B applications, Indian IT firms have adapted through localization and subcontracting, making them relatively better placed to adjust to the new fee regime.
Motilal Oswal on IT sector: Hardware Vs services – the real debate
According to the brokerage, the recent weakness in Indian IT has less to do with “AI vs. non-AI” and more with the ongoing hardware cycle. As the report noted, “we argue that this is not an AI vs. non-AI debate, but a hardware vs. services cycle.”
This cycle has played out before. Whether it was the dotcom boom, the rise of smartphones, or the shift to cloud services, enterprises have historically been slow to catch up. The brokerage noted, “today’s services weakness mirrors earlier cycles (dotcom to app services, iPhone to enterprise cloud native apps, consumer cloud to PaaS/SaaS), where enterprises only ramped up spending once the cutting edge of hardware stabilized.”
Motilal Oswal on IT sector: Why capex matters more than M&A
Motilal Oswal’s research also underlined that capital expenditure is emerging as the key driver of valuations in the tech world. “Our findings: higher capex = higher returns (obviously). However, R&D and M&A tell a different story,” the note highlighted.
Interestingly, companies like Accenture despite being aggressive on acquisitions have not managed to outpace valuations of Indian large-caps. R&D, however, seems to provide some cushion.
Motilal Oswal on IT sector: Margins under pressure
Another area of concern for the sector is profitability. Over the past decade, large-cap IT companies have gradually shifted towards fixed-price contracts, which brought revenue visibility but dragged on margins. The report noted, “between FY15 and FY19, large-cap IT vendors saw a steady increase in fixed-price contracts – Infosys’s mix rose from 41% to 53%, HCLT from 44% to 49%, and Wipro from 49% to 59%…sector EBIT margins declined by ~150bp over this four-year period.”
Motilal Oswal on IT sector: The AI lag and reskilling challenge
While AI adoption dominates headlines, Motilal Oswal pointed out that enterprise adoption will take time. “There is generally a lag of 5-8 years before a new consumer technology becomes enterprise-ready. GenAI arrived in Nov’22, we believe enterprise adoption is another ~18 months away.”
Historically, IT vendors have managed to reskill their workforce for every new wave of technology. But this time, the challenge could be different. GenAI might reduce the need for large workforces, reshaping the classic IT pyramid. The report noted, “what is different this time is that the GenAI may drastically reduce the number of people required to do the job.”