CLSA Cuts Target Prices for Indian IT Stocks Amid Valuation De-rating, Sees AI Fears as Overdone

Indian IT Services: CLSA Maintains Selective Stock Preferences, Cuts Price Targets

Key Findings

• CLSA believes fears of AI-led disruption in Indian IT services are overdone, with no material shift in business positioning and management commentary pointing to a potential macro recovery in CY26.
• Despite heightened debate around AI-led disruption, client spending behavior, deal structures, and service mix have not yet changed meaningfully.

Valuation De-Rating

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

• CLSA maintains that valuation multiples remain under pressure, reflecting investor skepticism over medium- to long-term growth visibility.
• The brokerage notes that this de-rating challenge persists even as company managements sound more confident about demand stabilization and a possible cyclical recovery next year.

Stock Preferences

• CLSA reiterated its stock preferences within the IT space, favoring:
  • Tech Mahindra and Infosys among large-cap names
  • Persistent Systems and Coforge among mid-cap IT companies
• Coforge remains CLSA's highest-conviction pick in the sector, with an 'outperform' rating and a target price of Rs 2,278 per share.

Target Price Adjustments

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

• CLSA trimmed target prices across the board, including:
  • Tata Consultancy Services: 'outperform' rating, target price reduced to Rs 3,333
  • Infosys: 'outperform' rating, target price cut to Rs 1,653
  • HCL Technologies: 'outperform' rating, target price lowered to Rs 1,506
  • LTIMindtree: 'outperform' rating, target reduced to Rs 6,304
  • Tech Mahindra: 'outperform' rating, target lowered to Rs 1,698
  • Wipro: 'hold' rating, target price cut to Rs 218