TCS, Infosys, HCL Tech, Cyient, Tata Elxsi: What Choice said on IT stocks; check targets

Choice Institutional Equities has outlined a favourable risk-reward profile for the IT sector, noting that large-cap IT services companies are trading near their 10-year average valuation multiples, while mid-tier firms are valued below historical peaks. This environment is seen as constructive for investors, especially those focused on companies with robust execution and attractive pricing.

According to Choice Institutional Equities, “We remain constructive on companies with strong execution track records, healthy deal wins, limited exposure to tariff-sensitive verticals and attractive valuations.” Preferred long-term investment picks include TECH Mahindra, Happiest Minds, ZEN Technologies, and KPIT.

The global IT services industry continues to accelerate its adoption of artificial intelligence, focusing on modernising legacy systems. These efforts, along with vendor consolidation and technology transformation, are expected to sustain near-term demand.

Regulatory developments remain a key consideration. The recent rate cuts announced by the US Federal Reserve, with more expected, could support improved client budget releases. However, the sector faces a significant challenge from the White House’s $100,000 one-time fee on new H-1B visa applications, which may impact near-term sentiment and delay client decision-making.

As stated in the report, “Thus, we believe the onus lies on the Indian IT companies (IT Services plus ER&D) to take a stand in terms of passing on the expected rise in operational cost led by H-1B fee hike or evolve their business models to stay immune from further regulatory changes.” This underscores the need for companies to adapt business practices in response to shifting regulatory costs.

Currency movements have also influenced sector outlook. In Q2FY26, the Indian rupee depreciated 2% quarter-on-quarter against the US dollar, reaching an average of 87.3. This is expected to benefit both top-line revenue and margins in rupee terms. Cross-currency movements, including a 3% appreciation of the euro and 1% of the pound sterling against the US dollar, are projected to provide a 0.5%–1% sequential benefit to top-line results in US dollar terms.

Choice Institutional Equities expects Indian IT Services and ER&D companies to show sequential growth of 0%–5.5%+ in US dollar terms for Q2FY26, supported by the ramp-up of strong total contract values booked through Q1FY26.

Notable strategic deal wins in Q2FY26 include TCS’s partnership with C-DAC to develop India’s sovereign cloud ecosystem, Infosys’s joint venture with Telstra for AI transformation, HCL Tech’s 10-year agreement with Dunedin City Council, and Wipro’s acquisition of Harman’s DTS business unit to enhance ER&D offerings.

 “We anticipate a gradual recovery in H2FY26, driven by the resumption of delayed programs, ramp-up of recent deal wins and incremental demand from China and India, which should partly support continued softness in Europe and the US,” it said.

For pure-play ER&D players, Choice Institutional Equities projects Q2FY26 sequential growth of (0.5)–1.1% quarter-on-quarter, with limited upside for full-year FY26 versus FY25. A more meaningful recovery is anticipated in FY27E, subject to the pace of deal closures and conversions over the next 2–3 quarters.

Choice Institutional Equities has a ‘buy’ rating on Coforge (Target Price: Rs 2,153), TCS (Target Price: Rs 3,950), Tech Mahindra (Target Price: Rs 1,755), Cyient (Target Price: Rs 1,555), L&T Technology (Target Price: Rs 4,850), Nazara Technology (Target Price: Rs 350) and Zensar Technologies (Target Price: Rs 1,130).

It has an ‘add’ rating on Happiest Minds (Target Price: Rs 655), HCL Technologies (Target Price: Rs 1,580), Infosys (Target Price: Rs 1,580), Mphasis (Target Price: Rs 2,805), Persistent Systems (Target Price: Rs 5,775), KPIT Technologies (Target Price: Rs 1,400) and Indiamart Intermesh (Target Price: Rs 2,475).

The brokerage has suggested to ‘sell’ Tata Elxsi for a target price of Rs 4,190, while it has ascribed a ‘reduce’ rating on Wipro (Target Price: Rs 252), LTIMindTree (Target Price: Rs 4,680) and Datamatics Global (Target Price: Rs 585).