Jefferies skeptical about rebound in beaten-down IT stocks, says growth outlook remains uncertain; check its top picks

While Indian benchmark indices are scaling fresh record highs, Jefferies remains skeptical on the outlook for Indian IT sector. The global brokerage said that the industry's growth outlook remains uncertain, which could continue to keep the stocks under pressure.

The Nifty IT index was trading in the red with marginal losses at 37,430, as seen at 11.10 am. Persistent Systems, Infosys, HCLTech and Tata Consultancy Services (TCS) shares were trading in the red.

Jefferies on IT:

Jefferies, in its note, said that the Nifty IT index has lagged benchmark index Nifty 50 by 25 percent in the calendar year 2025 so far, due to a 16 percent P/E derating from macro and AI uncertainty. Growth worries and AI-related uncertainty could cap multiples, even if cheaper valuations offer better entry points to investors, the international brokerage further said.

It added that the growth outlook of these firms remain uncertain as their respective management teams see only a gradual recovery. This puts FY27 estimates at risk, the brokerage said.

Top IT picks by Jefferies:

Jefferies prefers mid-sized IT names, including Coforge, Hexaware Technologies and Sagility. It said that these companies have outperformed large-caps in the sector due to relatively better earnings.

Among the large-cap IT firms, Jefferies prefers Infosys and HCL Technologies.

BNP Paribas on IT:

Unlike Jefferies, BNP Paribas remains positive on the sector. It noted that while Indian IT companies underperformed in terms of revenue growth, they outperformed in terms of deal wins.

"Our outlook index, built on management commentary across companies, indicates an improvement in outlook for deal signings as project delays appear to have bottomed in the Jun-25 quarter. We also see a gradual recovery in revenue outlook and guarded optimism on margins among companies," it said in its latest note.

Nomura on IT:

Nomura meanwhile expects marginally better revenue growth of 4.5 percent for large-cap IT companies in FY27, as against FY26. The international brokerage expects mid-caps to continue growing faster than large-caps in FY27.

Nomura expects average FY27 EBIT margin to improve by 30 bps for large-cap companies and by 50 bps for the mid-caps. It sees bigger revenue pool for IT service providers as enterprise AI adoption increases over the next 12-18 months, driving demand for cloud and data services.

Infosys is Nomura's preferred pick among the large-caps, Coforge among the mid-caps while eClerx Services is its preferred pick among the small-caps in the sector.

Nifty IT index closed 0.22 percent higher at 37,446.30 on Thursday. The sectoral index has fallen nearly 20 percent from its 52-week high of 46,088.9, which it had hit in December last year. While Nifty 50 has gained around 11 percent in 2025 so far, the IT index fell around 14 percent during the same period.