Infosys, TCS, Coforge, HCL Tech, TechM, Sagility: Selective rerating ahead, Jefferes shares target prices

The brokerage sees Infosys Ltd and Tata Consultancy Services Ltd (TCS) as the only large IT companies with further rerating potential, given that valuation upside appears limited beyond 17-18 times earnings per share. It raised their target prices by 14-18 per cent, but retained its 'Hold' rating on Infosys and 'Underperform' rating on TCS. Among midcaps, Sagility offers rerating potential, it said.

The Nifty IT index fell about 20 per cent in the first two months of 2026 before recovering. Since February 2026, it has risen about 3 per cent and outperformed the Nifty 50 by 12 percentage points. Jefferies said consensus earnings-per-share estimates for large IT companies had been cut by 3-5 per cent despite favourable foreign-exchange movements, but further PE derating had been limited since February.

The brokerage attributed the Nifty IT index's entire outperformance since February to October 2026, when it outperformed the Nifty 50 by 13 percentage points. IT stocks rose by up to 20 per cent in October, largely because of PE rerating, as most companies did not receive upgrades to revenue growth or EPS estimates.

Jefferies said sentiment towards the sector's long-term growth outlook had improved for two reasons. First, consensus expectations for US dollar revenue growth in FY28 did not face material cuts after the second quarter of FY27 results, unlike after the fourth quarter of FY26 and the first quarter of FY27. Second, IT companies continued to deliver growth despite weak macroeconomic conditions and AI-led deflation, making investors more willing to revisit their terminal growth assumptions.

According to Jefferies' calculations, current market prices imply organic constant-currency revenue compound annual growth rates of 0-9 per cent for large IT companies and 6-14 per cent for mid-sized companies over FY26-FY36. The implied terminal growth rates range from 1.5 per cent for Wipro to 3.5 per cent for mid-sized IT companies in constant-currency terms.

For most IT companies, these implied growth rates are two to four percentage points lower than those recorded over FY16-FY26. The exceptions are Infosys and Sagility, where the implied rates are six percentage points lower; Tech Mahindra and Mphasis, where they are four to five percentage points higher; and Coforge, where the rates are in line with the FY16-FY26 period.

Jefferies said the worst-case scenario would be no growth for IT companies beyond FY29. Under this scenario, IT stocks could trade at 12-13 times PE. Its best-case scenario assumes that companies maintain their long-term revenue growth trajectory in line with the growth recorded over FY21-FY26, except for Tech Mahindra and Mphasis.

Under the best-case scenario, large IT companies could trade at PE multiples of 15-22 times, while mid-sized companies could trade at 22-47 times, according to the brokerage's calculations. Among large-cap IT companies, Infosys and TCS are the only stocks offering rerating potential of more than 20 per cent in this scenario. Sagility stands out among mid-sized companies with rerating potential of more than 50 per cent. Jefferies also sees lower downside risks for Infosys and Sagility than for their peers.

The brokerage said the sector's revenue growth outlook remained muted over FY26-FY29. However, the absence of further negative growth surprises, amid potentially worsening sentiment towards global AI capital expenditure, could drive a rerating in IT stocks.Jefferies said best-case PE multiples for large-cap IT companies, including Wipro, ranged from 19 to 22 times, making the risk-reward profile unfavourable beyond 17-18 times PE. At current market prices, Infosys and TCS have further rerating scope because their valuations imply constant-currency revenue compound annual growth of 1-3 per cent over FY26-FY36. Sagility also compares favourably among mid-sized IT companies.

Jefferies raised its target PE multiples for TCS and Infosys to 13-14 times to reflect a low-single-digit, long-term constant-currency revenue growth outlook. It retained its U-PF rating on TCS and revised the target price to Rs 2,125, while maintaining its Hold rating on Infosys with a revised target price of Rs 1,160. Overall, it sees selective rerating potential in Infosys and TCS among large IT companies and in Sagility among mid-cap companies, even as the broader sector's growth outlook remains uncertain.