Jefferies believes IT stocks are pricing in revenue CAGR of 6-14 per cent (in rupee terms) for large IT firms and 9-17 per cent CAGR for mid-sized IT firms over FY26-36 with growth rates ranging from 4 per cent (Wipro) to 7 per cent (IKS).
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Key Points
- Jefferies has downgraded Infosys, HCLTech, and Mphasis to “hold”; LTI MindTree, TCS and Hexaware to “underperform”..
- Coforge, Sagility and IKS still remain its top picks.
- The extent and timing of this deflation are likely to exacerbate as AI tools improve.
- Stocks of Wipro, Coforge, LTI Mindtree, Persistent Systems, Infosys and TCS have been the top losers that slipped up to 20%.
Jefferies has downgraded Indian information technology (IT) companies Infosys, HCLTech, and Mphasis to “hold”; LTI MindTree, Tata Consultancy Services (TCS) and Hexaware to “underperform”, citing artificial intelligence (AI)-related concerns. Coforge, Sagility and IKS, however, still remain its top picks.
Also read: Budget 2026: The Business Of IP Remains Unfinished
The global research and broking house has cut earnings estimates by 1-4 per cent across IT firms and expects 6 per cent compound annual growth rate (CAGR) in earnings over FY26-28.
Among the lot, it expects Coforge, Sagility and IKS to grow faster at 19-25 per cent CAGR during this period, driven by higher revenue growth.
IT firms should remain relevant
While IT firms should remain relevant, Jefferies said, the nature of their client engagements is likely to structurally shift towards advisory and implementation.
And, application managed services (22-45 per cent of revenues) may see a sharp revenue deflation.
The extent and timing of this deflation, it said, are likely to exacerbate as AI tools improve.
“The rising share of advisory and implementation engagements would not only increase the cyclicality in revenue growth, but also demand an overhaul of talent strategy and operating models.
“Such changes in operating models are not easy to execute and investors must factor in this risk in price-earnings (PE) multiples,” wrote Akshat Agarwal and Ayush Bansal of Jefferies, in a recent note.
IT stocks have underperformed in 2026
Meanwhile, at the bourses, IT stocks have underperformed in 2026.
The Nifty IT index has lost over 15 per cent in 2026 compared to nearly 2 per cent dip in Nifty 50 during this period.
Wipro, Coforge, LTI Mindtree, Persistent Systems, Infosys and TCS have been the top losers that slipped up to 20 per cent, ACE Equity data shows.
At the current prices, Jefferies believes IT stocks are pricing in revenue CAGR of 6-14 per cent (in rupee terms) for large IT firms and 9-17 per cent CAGR for mid-sized IT firms over FY26-36 with growth rates ranging from 4 per cent (Wipro) to 7 per cent (IKS).
These growth rates, it said, are 6-12 per cent lower than the rates in FY16-26E for Sagility, Hexaware and IKS.
They are 3 per cent lower in FY16-26E for TCS, Infosys, HCLTech, and Coforge.
They are 1-2 per cent higher versus growth rates in FY16-26E for Wipro and tech Mahindra (TechM).
Maintaining the long-term revenue growth trajectory in line with the previous decade is the best case outcome for IT firms, going ahead, believes Jefferies.
In the worst-case scenario, revenue CAGR over FY26-31 could be 3 per cent lower (15 per cent cumulative deflation), followed by no growth beyond FY31.
PE multiples could range between 14 and 22x
In the best case, PE multiples, Jefferies said, could range between 14 and 22x for large IT firms with Infosys, HCLT and TCS offering around 15 per cent rerating potential.
This is 23-42x for mid-sized IT firms with Hexaware offering 35-45 per cent rerating potential.
“In the worst case, stocks could derate by another 30-65 per cent with Wipro having the lowest and Coforge having the highest derating potential.
“Assuming 3 per cent lower growth over FY26-36 and 1 per cent lower terminal growth, PE multiples could still derate by 10-35 per cent for large IT firms.
“It could be up to 15 per cent for mid-sized IT firms,” Agarwal and Bansal wrote.
