Infosys, Coforge, Sagility Favoured By Jefferies Amid Muted IT Sector Outlook

Jefferies has highlighted Infosys Ltd., Coforge Ltd. and Sagility India Ltd. as its preferred picks in the Indian IT sector, citing a need for bottom-up stock selection, amid weakening revenue trends and rising macro uncertainty.

Overall revenue growth for IT firms worsened in the fourth quarter of financial year 2025, with large-cap companies reporting sequential revenue declines, the brokerage noted.

This comes as the US and China agreed to reduce tariffs after a month of steep increases. Right after US announced the terms to reduce tariffs on China, the NSE Nifty IT jumped 6.90% to 38,356.10, the highest level since March 5.

In terms of valuations, Nifty IT is currently trading at approximately 25 times forward PE—on par with its five-year average and above pre-tariff levels—limiting further upside. The brokerage believes that wide divergence in performance across IT players calls for selective stock-picking.

Infosys is favoured for its valuation support and 3.5% dividend yield, which offers downside protection. Coforge is backed by a strong order book that supports earnings visibility and justifies its premium valuation. Sagility is also viewed positively for its growth outlook. On the contrary, Jefferies remains cautious on Wipro and Tech Mahindra due to earnings risks and potential valuation derating.

Jefferies' coverage universe posted a 1.5% quarter-on-quarter constant currency decline in organic revenues. The downturn was primarily due to weak demand in verticals such as manufacturing, retail, energy, and healthcare. While financial services showed some resilience, most other segments remained under pressure.

Geographically, Europe outperformed for tier-1 firms, though overall hiring remained muted despite healthy order bookings. According to Jefferies, these bookings are skewed toward cost-optimisation and vendor consolidation deals, suggesting that a sharp recovery in growth is unlikely in fiscal 2026.

Infosys has guided for 0–3% year-on-year growth, while HCLTech expects 2–5% growth. Jefferies estimates only 1.5% revenue growth for its IT coverage in fiscal 2026, with a recovery to 5% projected for financial year 2027.

Margins also remain under pressure said the brokerage. Aggregate margins fell by 40 basis points quarter-on-quarter to 19.8% in fourth quarter, with only Infosys beating expectations, while Tata Consultancy Services Ltd. disappointed.

Jefferies sees limited scope for near-term margin expansion due to restrained hiring and utilisation trends. Over financial year 2025–2027, it expects just a 60 bps margin improvement across its coverage universe, led by Coforge Ltd., TCS and Tech Mahindra Ltd.