Choice Institutional Equities has highlighted KPIT Technologies Ltd and L&T Technology Services Ltd (LTTS) as its top two long-term 'Buy' conviction ideas within the Engineering Research & Development (ER&D) segment of the IT sector. The domestic brokerage firm noted that ER&D valuations have seen significant corrections, with many stocks now trading below their five-year average valuations, presenting an enhanced risk-reward scenario.
According to Choice's recent report, the ER&D segment's outlook remains balanced. While Q4 FY26 showed improving execution stability and margin resilience, revenue recovery has been uneven due to delayed deal ramp-ups and conversions. However, structural growth drivers are still intact, supporting a gradual recovery expected to accelerate in the second half of FY27E.
KPIT Technologies: Shifting to a Product-Led Model
KPIT Technologies is undergoing a strategic shift towards a product-led model, aiming for 50-60 percent revenue contribution from products over the next three years. Currently, products already contribute 21 percent from its pipeline. The company is also moving away from traditional time-and-material (T&M) contracts to fixed-price, outcome-based agreements, with over 80 percent of new contracts adopting this structure, bolstered by AI-driven productivity gains.
The brokerage emphasized KPIT Tech's strong market position in automotive R&D, particularly in advanced driver-assistance systems (ADAS), infotainment, and electrical/electronic (E/E) architecture. Growth in H2 FY27 is anticipated to be driven by its expanding product and solutions portfolio. Choice has set a 12-month target price of Rs 1,030 for KPIT Tech, indicating a potential upside of 36.23 percent from its closing price of Rs 756.05 on May 25, 2026.
L&T Technology Services: Portfolio Recalibration and AI Integration
L&T Technology Services (LTTS) is benefiting from portfolio recalibration and an AI-led delivery model, which are enhancing revenue quality and margins while sustainably scaling high-value engagements. LTTS is focusing on key areas such as software-defined mobility, plant build-out and modernization, energy and industrial automation, next-generation compute, and AI infrastructure, alongside software platforms in AI and med-tech.
Demand for LTTS's services is supported by ongoing investments in hybrid and software-defined vehicles (SDV), with European original equipment manufacturers (OEMs) continuing their focus on cost optimization. Choice recommends a target price of Rs 4,350 for LTTS, suggesting a potential upside of 22.99 percent from its closing price of Rs 3,536.80 on May 25, 2026.
Disclaimer: This article provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.