Better Than Wipro, HCLTech? Brokerages Prefer These Midcap IT Stocks Amid Massive Target Cuts

Global brokerages Citi, HSBC, and CLSA have sharpened their caution on India's IT services sector, warning that artificial intelligence could structurally reshape business models and pressure valuations - even as stocks have rebounded roughly 16% year-to-date. The cautious tone follows a note from Jefferies, which argued that AI may permanently alter revenue structures across the sector. The brokerage said AI is likely to tilt revenue mix toward consulting and implementation, while shrinking traditional managed services - increasing cyclicality and execution risks.

Brokerages Flag Earnings Test and Deflation Risk

CLSA said a turnaround in earnings growth - not management commentary - will determine whether the sector narrative improves. While companies have pointed to a potential macro upcycle this year, CLSA sees risk of another 5-10% downside in stock prices and trimmed target prices across the board. It prefers Tech Mahindra over Infosys among large caps, and Persistent Systems and Coforge in midcaps.

• The brokerage sees potential 5–10% downside risk to stock prices.
• Pecking order in large caps favours Tech Mahindra and Infosys.
• In midcaps, Persistent Systems and Coforge are preferred.

CLSA's target price revisions:

• Coforge – Outperform (High Conviction); TP cut to Rs 2,278 from Rs 2,426.
• HCL Tech – Hold; TP cut to Rs 1,506 from Rs 1,661.
• Infosys – Outperform; TP cut to Rs 1,653 from Rs 1,779.
• LTIMindtree – Outperform; TP cut to Rs 6,304 from Rs 7,067.
• Persistent Systems – Outperform (High Conviction); TP cut to Rs 8,058 from Rs 8,865.
• TCS – Outperform; TP cut to Rs 3,333 from Rs 3,593.
• Tech Mahindra – Outperform; TP cut to Rs 1,698 from Rs 1,810.
• Wipro – Hold; TP cut to Rs 218 from Rs 231.

HSBC raised its estimate of AI-led deflationary risk to 14-16% of sector revenues over the next few years, up from 8-10% earlier, though it said proactive firms could offset this through new AI-driven revenue streams. It also expects a more supportive US spending environment in 2026.

• HSBC expects 14–16% gross deflationary risk from AI over the next few years, higher than its earlier estimate of 8–10%.
• Proactive companies could offset this through new revenue streams, enabling mid-single digit growth.
• The US macro environment is seen as supportive for IT spending in 2026.
• Valuations are not cheap in absolute terms but remain reasonable on a relative basis.

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Adding a macro lens, Citigroup noted that RBI data still shows double-digit growth in IT and consultancy exports. However, it warned that if software services growth turns flat in FY27, much of India's projected $20 billion balance-of-payments surplus could be eroded.

• Current RBI data indicates double-digit growth in IT and consultancy exports.
• Citi's sensitivity analysis suggests the software services sector must avoid a YoY decline.
• If decline is avoided, India can maintain a balance of payments surplus.
• If FY27 software services growth turns flat, the majority of the estimated $20 billion BoP surplus could be wiped out.

Jefferies cut earnings-per-share estimates by 1-4% and slashed price targets by as much as 33%. It downgraded Infosys, HCL Technologies and Mphasis to 'Hold', while moving TCS, LTI Mindtree and Hexaware Technologies to 'Underperform'. Wipro remains 'Underperform'. Despite the broader caution, it prefers Coforge, Sagility and IKS Health.

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