Infosys, Tata Consultancy Services, Coforge and Sagility are among the Indian IT stocks that Jefferies sees offering scope for a valuation re-rating, as improving sentiment and company-specific growth prospects create opportunities despite uncertainty over the sector's outlook.
The brokerage sees potential for large-cap IT stocks to recover as expectations improve, but remains selective. It has raised target prices for large-cap IT companies by 14–18% while retaining Hold and Underperform ratings on Infosys and TCS, respectively. Among mid-cap stocks, Jefferies sees re-rating potential in companies where growth prospects and valuations offer scope for further gains.
Large-Cap Picks
Jefferies said the correction in IT stocks and changes in investor expectations have created opportunities for a selective recovery. However, the brokerage cautioned that the sector's growth outlook remains uncertain and that a deterioration in sentiment towards global artificial intelligence capital expenditure could lead to further cuts in valuation multiples.
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The brokerage said the potential for a re-rating in large-cap IT stocks depends on improving sentiment towards long-term growth and the scope for earnings upgrades. It also flagged the risk that expectations for FY27 and FY28 could weaken if companies fail to deliver the growth investors anticipate.
Mid-Cap Scope
Jefferies sees selective opportunities among mid-cap IT companies, with Coforge and Sagility among the stocks it highlighted for potential re-rating.
The brokerage said most mid-cap IT stocks are trading at 12–14 times estimated price-to-earnings multiples for FY27, while a few trade at 14–22 times. It expects some companies to benefit from improving growth expectations, although the extent of any re-rating will depend on their earnings prospects.
Sagility stands out in the brokerage's assessment, with Jefferies citing potential for a re-rating of more than 50% in its best-case scenario. It also sees potential for a re-rating in Coforge, where growth expectations could support a higher valuation.
AI Risks
Jefferies said a worsening outlook for global AI capital expenditure could weigh on valuations across the IT sector. The risk is particularly relevant for companies whose valuations depend on expectations of stronger growth.
The brokerage also cautioned that if IT companies fail to deliver the growth expected in FY27 and FY28, investors could reassess the multiples they are willing to pay. It said the potential for a re-rating therefore remains selective, rather than a broad-based opportunity across Indian IT stocks.
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