Tech Mahindra, HCLTech, Coforge Remains Motilal Oswal's Top Stock Pick In IT Pack — Here's Why
Motilal Oswal continues to prefer bottom-up plays in IT, HCLTech and TechM in largecaps and Coforge in mid-tier.
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Motilal Oswal prefer Tech Mahindra, as it sees early signs of transformation under new leadership and improving execution in BFSI. Margin expectations are now more reasonable, and niche offerings are resonating well. The brokerage believe Tech Mahindra’s transformation remains relatively decoupled from discretionary spending. We continue to like HCLTech for its all-weather portfolio.
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Motilal Oswal Report
Q1 FY26 was a disappointing quarter for Indian IT services companies. While seasonality offered some respite in reported growth, management commentary remained uniformly downbeat on demand. About 54% of the companies under our coverage missed revenue estimates, whereas 31% missed margin estimates (only 23% beat estimates). Our observations regarding the quarter:
Productivity gains are starting to bite;
Mid-tier firms are finally feeling the pinch;
Margins are suffering across the board, potentially signaling a painful realignment;
Valuations are not the problem anymore, but questions are being asked of the structural demand outlook.
As we have argued before in our report dated June 05, 2025 (Productivity gains and Indian IT – What is the value at risk?), deflation in legacy services is not new.
Historically, however, each tech transition cycle has triggered a growth spurt. This time, GenAI is making the legacy drag worse, but the anticipated wave of GenAI-led spending is yet to materialize—prolonging the slowdown and muddying the recovery.
We continue to prefer bottom-up plays in IT: HCLTech and Tech Mahindra in largecaps and Coforge in mid-tier.
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