The Nifty IT Index fell nearly 2% in trade even as the broader market stayed firm and all ten constituents of the IT index were trading in the red. Stocks that saw big dent included the likes of Coforge, which fell over 3% intraday. The weakness was not limited to one or two names. large caps like Infosys, Wipro saw as much as 2% cut in morning trade. Other stocks such as LTIMindtree and Mphasis were down around 2% each. Meanwhile, Tech Mahindra, and Persistent Systems slipped close to 1%. HCLTech, Oracle Financial Services Software, and TCS also traded lower.
This directly results from the Jefferies downgrade on the IT sector. Not only has the international brokerage cut the earnings estimates for tech majors, it has also cut the target price of some of the tech stocks by as much as 33%. According to the report by Jefferies, the concern is not just about the next quarter’s earnings but about how Artificial Intelligence (AI) could reshape the industry itself.
Let’s take a look at what the brokerage has to say on these stocks and the rationale driving the investment analysis-
Jefferies on IT sector: Correction not enough
The Nifty IT index has already fallen 14% YTD and underperformed the Nifty by 12% points. Despite this correction, Jefferies believes risks remain. The brokerage noted, “Despite their 16% fall year-to-date, stocks still offer higher downside than upside.”
Furthermore, the brokerage has cut its Earnings Per Share (EPS) estimates by 1-4% and reduced price targets by up to 33% across select companies.
Jefferies on IT sector: Ratings reset – price targets cut, downside risks flagged
Jefferies has taken a cautious stance on large Information Technology names, trimming both ratings and price targets as part of its latest review.
The brokerage downgraded the TCS to Underperform and slashed the price target to Rs 2,350, implying a downgrade potential of nearly 33%.
For Infosys, the rating has been cut to Hold, with the price target reduced to Rs 1,290 (and to $14.31 from $20.82 for its US-listed shares). That reflects a reduction of around 31% in the target price.
Similarly, HCLTech has been downgraded to Hold, with the target lowered to Rs 1,390, a cut of about 26%.
In the case of Wipro, Jefferies maintained an Underperform rating and trimmed the price target to Rs 180, indicating a downside risk of roughly 18% from the earlier estimate.
Jefferies on IT sector: AI could change the business model
The brokerage house in its report said that “AI may structurally change IT business mix towards consulting/implementation while shrinking managed services.”
This means that the IT firms may earn more from advisory and project-based work, while steady, long-term maintenance contracts could reduce. Managed services currently account for 22-45% of revenues for many companies.
The brokerage added that such a shift “would not only increase cyclicality but also require a change in talent/operating model – thus adding risks.”
Jeffries on IT sector: Growth expectations under scrutiny
Jefferies attempted to decode what current market prices are implying.
At present levels, stocks are pricing in Indian rupee revenue Compound Annual Growth Rate (CAGR) of 6-14% for large IT firms and 9-17% for mid-sized firms over the FY26-36 period.
However, the brokerage believes this may be optimistic if AI-led disruption accelerates. It highlighted that “stock performance will more likely be tied to the longer-term business outlook rather than earnings delivery in the near term.”
Jefferies on IT sector: Risk of further valuation cuts
Jefferies cautioned that “maintaining the long-term revenue growth trajectory in line with previous decade is the best case outcome.” It also warned that in a more adverse case, “stocks could derate by another 30-65%.”
Another concern flagged was valuations compared with global peers. The brokerage said there is a “sharp 32% PE premium to Accenture despite similar growth” and “similar PE versus Nifty despite 50% lower earnings growth.” These valuation gaps, it argued, could trigger further corrections if growth disappoints.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.