BoB Capital Markets has issued a cautious assessment of Indian IT stocks, predicting subdued sector growth to persist until at least fiscal year 2029. The brokerage points to a combination of persistent macro risks and the deflationary impact of Artificial Intelligence (AI) as key headwinds.
Macroeconomic Headwinds and AI Disruption
According to BoB Capital Markets, the global macroeconomic backdrop has deteriorated due to rising commodity prices, higher bond yields in developed markets, and renewed tariff concerns. These factors are contributing to client anxiety, leading to the postponement of discretionary projects and delays in project ramp-ups, a trend observed throughout 2025 and the first half of 2026. If these pressures do not ease by the end of 2026, they could negatively impact spending plans for FY28.
Beyond immediate macro concerns, a structural shift driven by AI is also at play. BoB Capital Markets expects AI-led deflation risks to continue until at least FY29, with a more pronounced deflationary effect over the next 18 to 30 months as existing contracts come up for renewal. Clients are reportedly reallocating savings to other players in the IT ecosystem that possess greater bargaining power.
While business AI presents significant opportunities, the report highlights that AI labs, hyperscalers, and new market entrants are likely to compete intensely for enterprise technology spending, potentially diminishing the bargaining power of traditional IT services companies. The current debate around slower AI capital expenditure does not alter BoB Capital's near-term outlook on IT services spending.
Growth Projections and Valuations
Contrary to some market participants who anticipate a return to mid- to high single-digit growth in constant currency or US dollar terms for the sector in FY28 and beyond, BoB Capital Markets disagrees. The brokerage believes that industry growth is unlikely to accelerate soon. Any sharp stock price rebounds, they suggest, might be driven by optically low valuations, market positioning, and a 'fear of missing out' (FOMO) rather than a fundamental turnaround in growth.
BoB Capital Markets is maintaining lower-than-consensus target Price-to-Earnings (PE) multiples, citing weaker growth prospects and significant AI disruption risks. A reverse discounted cash flow (DCF) analysis for Infosys, for instance, indicates that the current market price implies mid-single-digit free cash flow growth over the next decade, a projection the brokerage does not consider sufficiently conservative.
The report also cautions against the premium valuations observed in some Tier-II IT companies. It notes that current Tier-1 firms, when they were of a similar size two decades ago, achieved much faster growth in a more favorable demand environment, yet traded at lower PE multiples. Tier-II players today face a considerably more challenging landscape, further reinforcing the expectation of subdued sector growth through FY29.
Revised Target Prices for Key IT Stocks
BoB Capital Markets has issued specific ratings and target prices for a range of IT stocks:
- Buy: Firstsource Solutions (Target Price: Rs 343)
- Sell:
- Birlasoft (Target Price: Rs 252)
- Coforge (Target Price: Rs 1,236)
- HCL Tech (Target Price: Rs 1,081)
- LTM (Target Price: Rs 4,042)
- Persistent Systems (Target Price: Rs 3,510)
- TCS (Target Price: Rs 2,002)
- Hold:
- Eclerx (Target Price: Rs 1,855)
- Infosys (Target Price: Rs 1,150)
- Mphasis (Target Price: Rs 2,246)
- Tech Mahindra (Target Price: Rs 1,625)
- Wipro (Target Price: Rs 178)
- Zensar Technologies (Target Price: Rs 427)