Jefferies expects rising demand and high global uncertainty to limit the upside for IT stocks. The brokerage has picked Infosys Ltd., Coforge Ltd. and Sagility India Ltd. as its preferred stocks in the sector amid current volatility.
US President Donald Trump's global tariff imposition is expected to hurt demand in the near term, that is FY26. "We cut our EPS estimates by 2-14% to factor this," the brokerage said.
The brokerage has also cut its target price for the IT stocks in the range of 5-35%, to factor in the unpredictability. It prefers stocks with higher growth visibility and limited de-rating risks.
The recent tariff announcements by the US government are expected to not only affect the US GDP growth outlook, but also significantly impact US-based multinational corporations, which are key clients of Indian IT firms, the note said.
The rising uncertainty and potential deterioration in the business outlook are likely to hinder new deal signings and discretionary IT spending. As companies shift their focus to cost management, projects with limited near-term return on investment may be delayed, Jefferies said.
Consequently, the brokerage reduced revenue estimates for FY26-27 by 100-500 basis points, with aggregate growth for the sector expected to moderate by 100 basis points to 2.7% in FY26.
The brokerage has downgraded TCS to 'hold' and cut target price to Rs 3,300 because of its limited growth. LTIMindtree and Mphasis also got a 'hold' rating, due to their high exposure to the US and discretionary spending. Wipro has been downgraded to 'underperform' from 'hold' because of its high discretionary exposure.
The brokerage maintained its 'buy' rating for Infosys but reduced target price to Rs 1,700 from Rs 1,835.
While Coforge and Sagility remain preferred picks, the target prices for both have been reduced. Target price for Coforge was lowered to Rs 7,860 from Rs 10,350 per share. Sagility's target price has been cut from Rs 64 to Rs 48.
"Tariff uncertainties are likely to impact manufacturing, logistics and retail verticals the most, given their reliance on global supply chains," the brokerage said.
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