- BofA initiated coverage on mid-cap IT stocks with a selective and cautious approach
- Coforge rated Buy with a target price of Rs 1,725 for balanced execution and growth
- Mphasis given Neutral rating with Rs 2,440 target, profitability seen as stable near-term
Mid-cap IT stocks are in focus after Bank of America (BofA) initiated coverage on the sector with a selective stance, identifying Coforge as its preferred pick while taking a cautious view on Persistent Systems and LTM amid an evolving AI landscape.
BofA initiated coverage on Coforge with a 'Buy' rating and a target price of Rs 1,725, describing the company as "a jack of all trades poised to shine in a low-growth industry phase." The brokerage believes Coforge's balanced execution across sales, domain expertise, disciplined capital allocation and acquisitions positions it well to outperform as growth across the IT services industry remains subdued.
For Mphasis, BofA initiated with a 'Neutral' rating and a target price of Rs 2,440. While the brokerage expects the company to benefit from its strong expertise in technology modernisation and AI-led enterprise transformation, it believes profitability is unlikely to move meaningfully beyond its current range in the near term.
The brokerage was more cautious on Persistent Systems and LTM, initiating both with 'Underperform' ratings. BofA assigned a target price of Rs 4,875 for Persistent, saying the company has differentiated itself from peers but much of that optimism is already reflected in valuations.
For LTM, BofA set a target price of Rs 3,910, noting that while the company has made progress in its turnaround, the triggers needed to drive the next leg of outperformance remain challenging.
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The brokerage's framework for evaluating mid-cap IT companies revolves around three pillars — AI strategy, balance sheet discipline and scalability, collectively referred to as the ABS framework. According to BofA, AI-driven technology modernisation represents the most scalable opportunity for Indian IT services firms over the coming years, with success depending more on technology expertise than traditional labour-based execution models.
BofA also believes Coforge and Mphasis have adopted a prudent approach to balance sheet deployment, particularly after recent large deal wins, and sees their capital allocation strategy as opportunistic rather than excessive.
The latest report comes just a day after JPMorgan turned more cautious on the broader Indian IT sector, downgrading HCLTech, Wipro and Tata Technologies on concerns that AI-led disruption and a weak demand environment could keep large-cap revenue growth limited to 3-4% over the next two years.
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