Indian IT stocks declined as much as 2.5% in Monday’s trading session after brokerage firm Jefferies downgraded the sector, stating that the pain caused by artificial intelligence-triggered disruption is not yet over.
Among the IT pack, Mphasis emerged as the top loser, dropping 2.5% to ₹2,314.30, followed by Infosys and Wipro, which fell nearly 2% each.
Other large-cap IT stocks, including LTIMindtree, Tata Consultancy Services, and HCLTech, declined by up to 1.2% during the intraday session on February 23.
Overall, the Nifty IT index lost 1.33% or 400 points today, taking the month-to-date fall to 19.5%. According to Jefferies, despite a 16% fall YTD, IT stocks still offer higher downside than upside. It lowered its earnings per share (EPS) estimates by 1-4%, and cut target prices by up to 33%.
Why did Jefferies downgrade IT stocks?
Global brokerage firm Jefferies, in its latest report, has warned that the impact of artificial intelligence on the sector may not be over. The brokerage also cautioned investors that under a worst-case disruption scenario, sector valuations could decline by an additional 30–65% from current levels.
The brokerage adopted a sharply cautious stance on Indian IT stocks, downgrading Infosys, Tata Consultancy Services, HCLTech, Mphasis, LTIMindtree, and Hexaware Technologies.
Infosys and HCLTech have been downgraded from “Buy” to “Hold”, with their target prices reduced to ₹1,290 (from ₹1,880) and ₹1,390 (from ₹1,885), respectively. The revisions come as target P/E multiples were lowered to 16x from 23x for Infosys and to 18x from 24x for HCLTech.
It also downgraded TCS, LTIMindtree and Hexaware to “Underperform” from “Hold,” with revised price targets of ₹2,350 (earlier ₹3,485) for TCS, ₹4,300 (earlier ₹6,175) for LTIMindtree and ₹460 (earlier ₹660) for Hexaware.
Meanwhile, Mphasis’ rating has been lowered to “Hold” from “Buy,” with its target cut to ₹2,450 from ₹3,410. Wipro continues to be rated “Underperform,” with a reduced target price of ₹180 compared with ₹220 previously.
| IT stock | Previous rating | New rating | Previous target price (in Rs) | New target price (in Rs) |
|---|---|---|---|---|
| Infosys | Buy | Hold | 1,880 | 1,290 |
| HCL Tech | Buy | Hold | 1,885 | 1,390 |
| Tata Consultancy Services | Hold | Underperform | 3,485 | 2,350 |
| LTIMindtree | Hold | Underperform | 6,175 | 4,300 |
| Hexaware | Hold | Underperform | 660 | 460 |
| Mphasis | Buy | Hold | 3,410 | 2,450 |
Jefferies believes that going ahead, stock performance will more likely be tied to the longer-term business outlook rather than earnings delivery in the near term.
Jefferies said it has lowered its earnings projections by 1–4% and now expects about 6% earnings CAGR for large-cap IT companies over FY26–28, with its EPS estimates sitting 3–14% below market consensus.
“We prefer mid-sized IT firms as they should grow faster due to their better ability to pivot faster to new opportunities. Coforge, Sagility and IKS are our picks,” the brokerage firm was quoted.
Jefferies expects these companies to deliver an earnings per share (EPS) CAGR of 19–25% over FY26–28, significantly higher than the 6% growth projected for its large-cap coverage universe. However, the brokerage also warns that the sector’s near-term outlook remains tilted toward risk, noting that IT stocks currently present greater downside potential than upside at prevailing valuations.
Potential downside risks to consensus forecasts, a steep 32% price-to-earnings premium to Accenture despite comparable growth prospects, and similar valuations to the Nifty 50, even though earnings growth is roughly 50% lower, are three derating triggers in its view.
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.
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