Indian IT stocks are anticipated to rebound, with Nuvama Institutional Equities expressing a positive medium-to-long-term outlook, largely driven by the increasing adoption of generative artificial intelligence (Gen AI). Despite near-term volatility, the brokerage highlights stable quarterly results for Indian IT services companies, characterized by consistent revenue growth and margin stability.
Deal wins have remained robust, bolstered by demand for AI-led solutions and ongoing digital transformation initiatives. However, the conversion timelines for these deals continue to be extended amid broader macroeconomic uncertainties.
Gen AI Impact and Market Expansion
Nuvama emphasizes that IT stocks are increasingly reacting to global AI developments rather than traditional fundamentals. The brokerage views current market skepticism as a repeat of previous tech cycles, anticipating a strong rebound as Gen AI proliferation expands. It argues that the role of system integrators will remain crucial in the Gen AI era, as enterprises will need customized implementation and integration support for new AI solutions.
While Gen AI-led productivity gains might initially lead to some revenue cannibalization for IT services firms, Nuvama projects that the sector will eventually reach an inflection point, significantly expanding the total addressable market (TAM). The brokerage estimates this opportunity could grow to an impressive $300–400 billion by 2030.
Attractive Valuations and Buy Recommendations
The recent sharp correction in IT stocks has rendered valuations attractive, according to Nuvama. A reverse discounted cash flow (DCF) analysis suggests extremely low terminal growth assumptions, indicating a potential undervaluation.
Nuvama has reiterated 'Buy' ratings on several largecap IT companies, including:
- Tata Consultancy Services (TCS): Target price of Rs 3,650
- Infosys: Target price of Rs 1,650
- Wipro: Target price of Rs 255
- Tech Mahindra: Target price of Rs 1,750
Additionally, 'Buy' calls have been assigned to midcap firms:
- LTM Ltd (formerly LTIMindtree): Target price of Rs 6,200
- Coforge Ltd: Target price of Rs 2,200
- Persistent Systems Ltd: Target price of Rs 6,100
- Mphasis Ltd: Target price of Rs 3,200
- Hexaware Technologies Ltd: Target price of Rs 550
- Firstsource Solutions Ltd: Target price of Rs 320
Ravi Singh, Chief Research Officer at Mastertrust, echoed this sentiment, noting that large IT firms are aggressively investing in AI, developing proprietary tools, and partnering with global AI platforms. He views the current weak sentiment as an industry transition rather than a long-term threat, positioning the sector for future growth driven by new technology spending.