MUMBAI: Following a tepid Q4FY26 performance, weak management commentary and a slowing order book, IT stocks witnessed one of their steepest selling spree last week, wiping out billions of dollars of investors' wealth.
The Nifty IT sectoral benchmark plunged more than 10 per cent over five sessions, extending its year-to-date decline to 25 per cent as lingering fears regarding AI-driven disruption continue to pressure valuations.
This level of crash has led investors to ponder: Buy the dip, sell or hold off? Experts trace the mounting strain to tepid earnings and conservative outlooks. They believe that from a market perspective, the trend remains weak with signs of a bottom yet to be seen. However, many also believe in an opportunity at current valuations.
“The weakness is coming from both domestic and global triggers. On one hand, Indian IT companies have reported softer-than-expected results and conservative guidance. On the other hand, sharp declines in global tech stocks, despite decent earnings, have raised concerns around slowing growth and the impact of AI-led disruption,” said Apoorva Khandelwal, Associate, IT sector at Anand Rathi Institutional Equity.
He added, “This combination has amplified concerns around near-term growth. Even as companies win large AI-led deals, pricing pressure in traditional services is increasing, leading to what experts describe as ‘revenue deflation’.”
Vinit Bolinjkar, Head of Research at Ventura, said that the view on the IT sector remains cautious. “Given the revised guidance and macroeconomic challenges, we would advise a cautious approach to Infosys, TCS, and HCL Technologies,” added Bolinjkar.
He said that TCS remains relatively stable and shows resilience, especially in digital transformation services, though its growth guidance has been moderated.
"Infosys and HCL Tech face more immediate challenges, particularly in Europe and telecom, making them less attractive in the near term," stated Bolinjkar.
DSP Mutual Fund in a note said that the sector has no price froth, little valuation excess, and a weak business cycle already reflected in prices.
“The IT sector's weight in the Nifty 50 is also near an all-time low, which suggests it is under-owned. Importantly, margins have not yet shown the kind of damage that usually signals real distress. Even in a bear case of zero revenue growth and some margin compression, the downside appears closer to a de-rating toward 13-14x trailing earnings than a collapse in business quality,” stated the fund house.
It added, “Our base case remains that these companies will continue to play an important role in enterprise technology. These are debt-free businesses with high and stable returns on equity, which should slow any regression in quality. At current prices, terminal-value risk appears limited, and we remain overweight.”
Most brokerages have reduced their target prices for major IT stocks but maintain buy calls at current valuations. JPMorgan maintained a ‘Neutral’ rating and lowered its target to Rs 1,370 from Rs 1,419 on HCL Technologies, highlighting revenue, margin and EPS misses.
The brokerage warned that weakness in telecom and SAP-related demand could persist into FY27. HCL Tech shares crashed about 16 per cent in the past three sessions to Rs 1,202 apiece.
Citi also maintained a ‘neutral’ stance with a reduced target of Rs 1,385, pointing to weak revenue growth, deal momentum and guidance. Jefferies, meanwhile, downgraded the stock to ‘underperform’ with a price target of Rs 1,165, one of the lowest on the Street.
For Infosys, Axis Securities slashed its target price sharply from Rs 1600 to Rs 1,330. The shares crashed nearly 12 per cent last week to settle at Rs 1,154.80. Infosys has also seen price cuts from Kotak Securities, Jefferies and Citi. For Tata Consultancy Services (TCS), Morgan Stanley has given a target price of Rs 3,540, a sharp potential from the current level of Rs 2,401. Citi, however, sees a downside and has given a target of Rs 2,250.