UBS has upgraded Tech Mahindra, Coforge and Mphasis to ‘Buy’ in its latest report on Indian IT services, while downgrading HCLTech and Persistent to Neutral. Among the five revised calls, Coforge has the highest recalculated upside potential at about 27%, followed by Mphasis at about 23% and Tech Mahindra at about 18%, based on UBS’ target prices and reference values in the report.
The brokerage changed its ratings after reviewing growth visibility, execution and company-specific risks across the sector. UBS said the recent rally in IT stocks has come as some concerns around AI, employment and GCCs are beginning to ease, but added that these factors have not yet led to meaningful revenue growth acceleration for the larger companies.
UBS has maintained its preference for Tier 2 IT companies over Tier 1 peers and said stock selection remains important. The brokerage upgraded Tech Mahindra from Neutral to ‘Buy’, Coforge from Neutral to ‘Buy’ and Mphasis from Neutral to ‘Buy’. It downgraded HCLTech and Persistent from ‘Buy’ to Neutral.
Here is a look at UBS’s revised calls, target prices and the recalculated upside.
| Company | UBS rating | Target price | Recalculated upside |
| Coforge | ‘Buy’ | Rs2,400 | 27.1% |
| Mphasis | ‘Buy’ | Rs2,980 | 22.6% |
| Tech Mahindra | ‘Buy’ | Rs1,865 | 17.8% |
| Persistent | Neutral | Rs6,250 | 10.6% |
| HCLTech | Neutral | Rs1,415 | 8.5% |
Source: UBS report. Upside percentages recalculated from the reference values and target prices used by UBS.
UBS on Tech Mahindra: ‘Buy’
UBS upgraded Tech Mahindra to ‘Buy’ from Neutral and raised its target price to Rs1,865 from Rs1,460. The brokerage’s revised target implies a recalculated upside of about 17.8%.
UBS raised its target valuation multiple to 19 times FY28-29 estimated earnings from 16 times. The brokerage said Tech Mahindra’s execution has been better than it had previously expected, with revenue growth running ahead of the industry and margins continuing to improve.
The brokerage expects Tech Mahindra to deliver more than 5% FY27 revenue growth, compared with about 2% expected industry growth. UBS attributed this to strong order wins and the ramp-up of recently won large deals. It also said quarterly TCV has exceeded US$1 billion for three consecutive quarters.
UBS expects FY27 EBIT margin of about 15%, compared with 6.1% in FY24, and sees the Q4FY27 exit margin at 15.6%. It said consensus estimates could still be underestimating both revenue growth and margin improvement.
“Revenue growth is tracking well ahead of the industry average, margins continue to improve,” UBS said.
Source: UBS, Indian IT Services report
UBS on Coforge: ‘Buy’
UBS upgraded Coforge to ‘Buy’ from Neutral and raised its target price to Rs 2,400 from Rs 1,505. The brokerage’s revised target implies a recalculated upside of about 27.1%, the highest among the five companies whose ratings were changed.
UBS raised its target valuation multiple to 30 times FY28-29 estimated earnings from 21 times. The brokerage said its earlier Neutral rating was mainly driven by concerns about the Encora acquisition, including integration, earnings dilution and synergy realisation.
According to UBS, Coforge’s Q1FY27 performance provided greater confidence that the Encora integration was progressing while the company continued to report strong growth and margins. The brokerage also cited management’s indication that Encora’s SG&A costs were already down by about 40%.
UBS said Coforge’s executable order book reached a record US$2.2 billion at the end of Q1FY27. The brokerage said the forward revenue-to-executable order book ratio of about 1.2 times, against a long-term average of about 1.4 times, supported its growth estimates.
“Coforge continues to execute strongly, delivering revenue growth and margins ahead of expectations in Q1FY27,” UBS said.
UBS on Mphasis: ‘Buy’
UBS upgraded Mphasis to ‘Buy’ from Neutral and raised its target price to Rs2,980 from Rs2,440. The brokerage’s revised target implies a recalculated upside of about 22.6%.
UBS raised its target valuation multiple to 22 times FY28-29 estimated earnings from 19 times. The brokerage said its earlier downgrade was driven mainly by a slower-than-expected recovery and not by concerns about the company’s underlying business.
Mphasis reported 7.7% year-on-year revenue growth in Q1FY27, according to UBS. The brokerage expects FY27 revenue growth of 9.4%, compared with the 8.6% consensus expectation cited in its report, and towards the upper end of management’s high-single-digit to low-double-digit growth guidance.
UBS said recent deal wins have improved revenue visibility, while booking-to-revenue conversion has remained healthy. It also said Mphasis is positioned to participate in spending related to cloud, application modernisation, data and BFSI transformation, particularly in North America.
“Growth has begun to accelerate, with Q1FY27 revenue growth of 7.7% YoY,” UBS said.
UBS on HCLTech: ‘Neutral‘
UBS downgraded HCL Technologies to ‘Neutral’ from ‘Buy’ and raised its target price to Rs1,415 from Rs1,390. The revised target implies a recalculated upside of about 8.5%.
The brokerage retained its target valuation multiple at 18 times FY28-29 estimated earnings. UBS said HCLTech continues to have a stronger medium-term outlook than several peers, helped by the recent US$1.1 billion mega deal that is expected to ramp up from FY28.
However, UBS said the upper end of HCLTech’s FY27 constant-currency revenue growth guidance of 1% to 4% appears increasingly difficult to achieve. The brokerage said it sees a rising probability of a guidance downgrade over the coming quarters.
UBS also noted that HCLTech reported a 0.5% sequential constant-currency revenue decline in Q1. According to the brokerage, achieving the midpoint of the company’s FY27 guidance would require quarterly growth of about 2.5% to 2.6% despite the weak macroeconomic environment.
“While the company remains structurally well positioned,” UBS said, “the near term could be challenging.”
UBS on Persistent: ‘Neutral‘
UBS downgraded Persistent Systems to Neutral from ‘Buy’ while retaining its target price of Rs6,250. The brokerage’s target implies a recalculated upside of about 10.6%.
UBS said Persistent continues to have strong underlying execution. According to the brokerage, its exposure to product engineering, limited presence in legacy services and favourable business mix continue to support its position for AI-led technology spending.
The downgrade, however, was linked to the proposed acquisition of Nagarro. UBS said the transaction could add scale, capabilities and client relationships, but it also changes Persistent’s risk profile by increasing debt and bringing integration-related uncertainties.
UBS said Persistent’s strong growth, margin performance and AI positioning support its premium valuation, but the proposed acquisition and the stock’s recent rally prompted the brokerage to close its ‘Buy’ call and move to Neutral.
“Persistent continues to demonstrate strong execution and remains one of the best-positioned companies in our IT services coverage,” UBS said.
UBS stays selective as IT stock calls change
UBS’s latest report shows a clear preference for specific IT stocks rather than a positive call across the entire sector. The brokerage said the need for deployment, integration, data readiness, governance and security could create new opportunities for IT services companies as AI adoption expands.
At the same time, UBS said these opportunities have yet to produce broad-based revenue acceleration, especially among larger IT companies. Client decision-making remains prolonged, while the question of whether AI-related revenue can offset pressure on older revenue streams is still unresolved, according to the brokerage.
That has led UBS to upgrade Tech Mahindra, Coforge and Mphasis while downgrading HCLTech and Persistent. Coforge carries the highest recalculated upside at about 27.1%, followed by Mphasis at 22.6% and Tech Mahindra at 17.8%.
UBS summed up its approach by saying, “being selective still remains key.”
Conclusion
UBS’s analysis shows where the brokerage sees the stronger opportunities within Indian IT. It has turned positive on Tech Mahindra, Coforge and Mphasis, citing improving execution and growth momentum, while moving HCLTech and Persistent to Neutral as near-term concerns and company-specific risks have increased.
Disclaimer: This article is based on UBS’s research report and the brokerage’s stated ratings, target prices and estimates. The views and recommendations mentioned are those of UBS and do not necessarily reflect those of The Financial Express. Stock market investments are subject to market risks. Investors should conduct their own research and consult a qualified financial adviser before making any investment decision.