Cognizant Technology Solutions’ June-quarter earnings reinforce CLSA’s preference for select mid-tier Indian IT companies, with the brokerage retaining a ‘High Conviction Outperform’ rating on Coforge and an ‘Outperform’ rating on LTIMindtree.
The brokerage believes that the quarter also points to intensifying competition in the banking, financial services and insurance (BFSI) segment, while recent gains in large-cap IT stocks leave less room for further upside. CLSA retains a target price of Rs 2,170 on Coforge, implying 26.8% upside, and Rs 4,570 on LTIMindtree, implying 3.7% upside.
Guidance cut signals caution on demand
Cognizant lowered its 2026 revenue growth guidance to 4-5.5% from 4-6.5%, including 150 basis points of inorganic growth. Organic revenue growth guidance also comes down to 2.5-4% from 2-5%, while adjusted EBIT margin guidance remains unchanged at 16-16.2%.
In a note following Cognizant’s second-quarter results, CLSA said that the US-based IT services company delivers results broadly in line with expectations but lowers its 2026 revenue growth guidance because of macroeconomic uncertainty.
“Even its revised guidance at mid-point assumes improvement in the macro environment during 4Q26 and superior QoQ growth than prior years. This to us implies slightly aggressive guidance, given the current geopolitical climate and lack of macro clarity going into the US mid-term elections,” CLSA says.
Coforge and LTIMindtree areCLSA’s preferred picks
CLSA says recent gains across global IT services stocks have pushed valuations of several large-cap Indian IT companies closer to fair value, making select mid-tier companies more attractive.
The brokerage also says AI-driven productivity gains are unlikely to offset pricing pressure in the near term for companies with significant exposure to traditional managed services.
“We do not see the AI deflation impact being more than offset by additional volume around AI anytime soon. Hence we prefer good quality mid-tier operators over large caps having high managed services exposure ripe for AI disruption. We see the best risk-reward in Coforge and LTM at this stage, in our coverage,” CLSA says.
BFSI business remains the key takeaway
According to CLSA, the strongest takeaway from Cognizant’s results is the continued momentum in its banking, financial services and insurance business, pointing to increasing competition for Indian IT companies.
The brokerage notes that Cognizant reports 12% year-on-year growth in BFSI revenue in dollar terms after 10% growth in the previous quarter. The company also ends the quarter with a $29.1 billion order book, up 5% year on year, representing a book-to-bill ratio of 1.3 times. During the quarter, Cognizant signs 11 large deals, including seven contracts worth more than $100 million, three of which are new logo wins.
“The key read across from CTSH’s results for Indian IT is increased competition in the BFSI segment where it seems TCS, INFY, HCL, Wipro and Accenture are losing out to CTSH,” CLSA says.
AI spending continues to rise
CLSA says Cognizant continues to expand its AI capabilities through partnerships with frontier model providers. The company now has 10,000 Claude-certified architects and 10,000 associates with OpenAI badges, while planning to build 5,000 frontier-certified engineers and 10,000 frontier business operators over the next few years.
The brokerage says AI is creating new opportunities for technology companies, but expects pricing pressure to persist in the near term. That is why it continues to favour Coforge and LTIMindtree over larger peers with greater exposure to traditional managed services.
Conclusion
CLSA says Cognizant’s June-quarter earnings support its existing investment view. While the brokerage expects competition in the BFSI business to remain strong and AI to reshape the IT services industry over time.
Disclaimer: The brokerage views, target prices, and stock ratings featured in this article reflect the independent analysis of CLSA and do not constitute an offer or solicitation to buy, sell, or hold any security. Equity investments are subject to market risks, and past performance or target estimates are not indicative of future returns. Readers are advised to perform independent research and consult a SEBI-registered financial advisor prior to making any investment decisions.
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