Infosys to TCS, HCL Tech: Nifty IT jumps despite weakness on Dalal Street - Kotak cuts targets for 7 IT stocks

IT stocks jumped on Friday, March 6 in an otherwise falling markets. The Nifty IT index jumped almost 2% as against a 0.6% fall in benchmark Nifty.

Indian stock markets were trading on a weak note, mirroring subdued global market sentiment as the continuing US-Israel-Iran conflict dampens investors’ appetite for risk. Sensex fell over 500 points while Nifty was trading around 24,650.

Among stocks, Persistent Systems was the top gainer, up 3% followed by Mphasis, which added 2%. Meanwhile, Coforge, Oracle, HCL Tech, Tech Mahindra, LTIMindtree, Wipro, and TCS advanced over 1% each. Infosys was also up 0.8%

Why are IT stocks rising?

The recent rebound in IT stocks comes after a sharp correction last month, when the Nifty IT index plunged more than 19% amid rising concerns over AI-driven disruption in the IT services sector. Growing fears that rapid advances in artificial intelligence could erode the relevance of traditional IT services and deal a significant blow to Indian IT companies.

"AI will render much of legacy software and testing redundant. Just like hyperscalers were initially a significant headwind to infra management services (IMS), and BPO got disrupted in the earlier cycle (2015)," brokerage firm Motilal Oswal Financial Services had said in a report last month.

This broad-based sell-off led to a meaningful cooling of valuations across the sector, bringing several IT stocks closer to more reasonable levels after a prolonged period of premium pricing.

With the broader equity market currently facing pressure from global uncertainties and geopolitical tensions, the IT sector is increasingly being viewed as a contrarian opportunity by investors. The correction has improved the risk-reward profile of many IT stocks, prompting some market participants to selectively accumulate them even as overall market sentiment remains cautious.

Nuvama also maintained that the Indian IT Services industry will come out stronger from the Gen AI disruption—with a net increase in its TAM—just like the earlier disruptions. It remains positive on the sector from a medium to long-term view but added that near-term volatility might persist.

Stocks to buy

Kotak Institutional Equities has lowered earnings forecasts and target prices for several major Indian IT services companies, cautioning that the fast adoption of generative artificial intelligence could pose risks to the sector’s long-term growth trajectory.

The brokerage revised its earnings per share (EPS) estimates for seven companies—Infosys, Tata Consultancy Services (TCS), Wipro, HCLTech, Tech Mahindra, Persistent Systems and Coforge—and cut their fair value estimates by roughly 15% to 28%.

Kotak now places a target price of ₹3,090 on TCS, reduced from ₹3,675 earlier, while the target for Infosys has been lowered to ₹1,530 from ₹1,900.

Among other Tier-1 IT firms, Wipro’s target price has been cut to ₹190 from ₹240, HCLTech’s to ₹1,425 from ₹1,680, and Tech Mahindra’s to ₹1,615 from ₹2,000.

In the mid-tier segment, Coforge’s target has been revised down to ₹1,620 from ₹2,250, while Persistent Systems’ target has been reduced to ₹4,615 from ₹5,900.

Despite its cautious outlook, Kotak continues to favour select companies. Among large-cap firms, it prefers Infosys, TCS and Tech Mahindra due to relatively attractive valuations and strong cash generation. In the mid-tier space, the brokerage remains positive on Coforge and Hexaware.

Kotak increased its cost-of-equity assumptions by 50–100 basis points and trimmed EPS estimates by about 1–3%. It expects Tier-1 IT firms to trade at 13–18 times FY2028 earnings and mid-tier companies at 18–27 times. The brokerage also warned that generative AI could boost productivity and reduce outsourced IT demand, and now expects industry revenue deflation of around 3–3.5% in FY2027–28, compared with an earlier estimate of 2–3%.

Meanwhile, Choice Broking noted that AI is reshaping the IT services landscape; however, enterprise complexity, governance requirements and integration challenges are expected to moderate the pace of disruption.

However, it added, "Overall, the sector is entering a structural transition, with winners defined by their shift to AI-enabled, outcome-led platform models where presently Mid-Caps are well positioned. Hence, our long-term investment ideas are COFORGE, PSYS, HAPPSTMN and KPITTECH."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.