IT Sector Enters Value Zone: ICICI Securities Identifies Top Mid-Cap Stocks for Investment

Indian IT Stocks Experience Correction Amid AI Headwinds

The Nifty IT Index has declined by over 21% on a year-to-date (YTD) basis, currently trading at around 15.4x two-year forward earnings. This valuation is in line with the Nifty 50 and represents a decrease from its long-term average premium of about 17% over the benchmark index.

ICICI Securities attributes the correction in valuations to the risk of AI-led revenue deflation following the launch of advanced Claude Cowork Agentic AI plugins in February 2026. The brokerage firm believes that the advancement in AI agents will lead to prolonged subdued growth for the industry. However, street models already anticipate subdued revenue growth for the IT sector during FY27–28E, with minimal earnings downgrade risk.

ICICI Securities expects a stable demand environment with continued subdued constant currency (CC) revenue growth of 3% – 6% YoY for the IT Services industry in FY27E, better than FY26 but still lower than the long-term average of 7% – 8% YoY in dollar terms. The brokerage firm has cut its target multiples for the IT stocks under its coverage by 20% to align with its pre-COVID-19 averages.

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Recommendations

• ICICI Securities has upgraded its stance on the IT sector to 'Neutral' due to the now priced-in structural AI headwinds.
• The brokerage firm prefers mid-cap IT stocks over large-cap IT stocks, citing their ability to quickly remodel their business and compete with incumbents in large multi-service line deals leveraging AI.
• Among mid-caps, ICICI Securities recommends Coforge, Mphasis, Hexaware Technologies, and Latent View Analytics.
• The brokerage firm has upgraded its rating on Coforge shares to 'Buy' and Mphasis shares to 'Buy' based on their attractive valuations and healthy revenue growth visibility.
• ICICI Securities has cut its target price for Coforge to ₹1,430 apiece and Mphasis to ₹2,500.
• The brokerage firm has upgraded its rating on LTIMindtree to 'Hold' and cut the target price to ₹4,490.