The Indian IT sector has seen a significant upswing, with the NSE IT index rallying approximately 12 percent over the last month. This surge is largely attributed to an easing of fears surrounding artificial intelligence-led disruption, coupled with a noticeable uptick in hiring activities across several companies.
AI Fears Ease, Hiring Picks Up
According to JM Financial, September-quarter results were generally in line with or slightly above expectations, contributing to the renewed investor confidence. Most IT firms reported net headcount additions during the quarter and continued to recruit freshers, indicating a positive outlook on future revenue visibility. However, the brokerage firm remains selective, citing persistent macroeconomic uncertainty, AI-led productivity in deal negotiations, and intense competition as ongoing concerns.
Demand Outlook and Company Performance
While a sustained demand recovery has yet to fully emerge, JM Financial anticipates a gradual improvement in constant-currency revenue growth for large-tier companies, projecting around 4 percent in FY28 from approximately 3 percent in FY27. Individually, TCS's international business showed 1.2 percent sequential constant-currency growth, and HCL Technologies expressed optimism regarding September demand. Wipro also shared a positive outlook for its fourth quarter. In contrast, Infosys Ltd maintained a cautious stance due to softer volumes, lack of realization benefits, and increased competitive intensity.
JM Financial's Top IT Stock Picks
Despite the broader market optimism, JM Financial maintains a discerning approach, highlighting specific companies for investment. Among large-tier firms, Tech Mahindra Ltd is rated 'Add' with a target price of Rs 1,800. For mid-tier companies, Mphasis receives a 'Buy' rating, targeting Rs 2,645. In the BPO segment, Sagility and Firstsource are both rated 'Buy', with target prices of Rs 56 and Rs 310, respectively.
Valuation Trends and Future Prospects
The brokerage notes that large-tier IT stocks have outperformed mid-tier companies since early October, partly due to a shift away from anti-AI trading sentiments. This has narrowed the valuation premium of mid-tier firms over large-tier counterparts. The NSE IT index currently trades at 18.1 times one-year forward consensus earnings, below its five-year average, suggesting potential for further growth if demand strengthens meaningfully.
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.