Erasing early gains, the Nifty IT index slipped into the red on Thursday, as Kotak analysts flagged rising disruption risks from generative AI for the sector.

The Nifty IT index dipped 0.59 per cent to settle at 30,126.80, hitting an intraday low of 29,823.15 in today’s trade after a positive opening at 30,554.85 from the previous close of 30,305.25.

The index had staged resilience in the previous trading session despite the broader market fall, emerging as the only index closing in the green. However, sentiment weakened in the latest session as selling pressure spread across the pack.

MphasiS, Persistent Systems, Coforge, Tech Mahindra and LTM ended as major losers under the index, shedding up to 2 per cent. Heavyweights Infosys, TCS and Wipro ended nearly flat.

Target price cuts across IT pack

Factoring in slower growth and higher disruption risk, Kotak Institutional Equities has trimmed earnings estimates and reduced fair values across the sector. The brokerage cut EPS estimates by 1–3 per cent and reduced fair values by roughly 15–28 per cent across companies under coverage, while also raising cost of equity assumptions by 50–100 basis points.

Among large-cap IT companies, Kotak now values TCS at ₹3,090 per share, Infosys at ₹1,530 and Tech Mahindra at ₹1,615. It assigns a target price of ₹1,425 for HCLTech and ₹190 for Wipro.

For mid-tier companies, the brokerage sets a target price of ₹4,430 for LTIMindtree, ₹1,620 for Coforge, ₹4,615 for Persistent Systems, ₹2,275 for Mphasis and ₹620 for Hexaware.

The report indicates that Tier-1 IT stocks are likely to trade at around 13–18 times FY2028 earnings, while mid-tier firms could command valuations of 18–27 times.

Preferred picks in the sector

Despite the cautious outlook, Kotak continues to see selective opportunities within the IT space. Among Tier-1 companies, the brokerage prefers Infosys, TCS and Tech Mahindra, noting that current valuations already reflect subdued growth expectations and offer relatively attractive free cash flow and payout yields.

In the mid-tier segment, Coforge and Hexaware are the preferred names due to comparatively inexpensive valuations and potential for stronger growth.

It has changed the rating of Persistent Systems from sell to reduce.

Kotak flags higher Gen AI disruption risks

A recent report by Kotak Institutional Equities highlighted rising risks from generative AI adoption, which it believes could trigger revenue deflation for IT services companies in the coming years.

The brokerage now factors in around 3–3.5 per cent revenue deflation for the global IT services industry in FY2027–28, higher than its earlier estimate of 2–3 per cent. The increase reflects faster innovation cycles in AI models, growing enterprise adoption and an AI-first approach among developers and technology firms.

Kotak noted that while overall technology spending is expected to remain robust due to generative AI investments, a larger share of the spending may accrue to hyperscalers and AI labs rather than traditional IT services providers.

As a result, the brokerage expects global IT services growth to remain moderate over the next decade, projecting industry expansion of around 4–5 per cent annually in dollar terms.

Challengers may outperform incumbents

Kotak believes mid-tier “challenger” firms could gain an edge over incumbents in the evolving technology landscape.
Large IT companies may face pressure from revenue deflation given their sizeable base, while smaller players have greater flexibility to disrupt their own offerings and capture emerging opportunities in AI-driven services.

At the same time, the brokerage cautioned that application development and customer BPO services could see the highest productivity-driven deflation from AI adoption, while areas such as infrastructure management and consulting may remain relatively resilient.

Long-term relevance intact despite near-term headwinds

While generative AI is expected to reshape the industry, Kotak does not believe the shift will eliminate the need for IT services companies. Instead, it expects the sector to remain structurally relevant over the long term, even as the pace of growth moderates and productivity gains reshape revenue models.

However, the brokerage warned that evolving AI capabilities and enterprise adoption trends could lead to periodic volatility in IT stocks as investors reassess the sector’s long-term growth trajectory.

Mid-tier IT firms best placed to benefit from AI-led transition: Choice

According to Choice Institutional Equities, the IT services sector outlook remains neutral. Based on industry channel checks with senior technology leaders, the brokerage believes enterprise adoption of AI will be gradual due to legacy system complexity, regulatory constraints, data-security concerns and the need for human oversight in mission-critical processes. While GenAI may drive modest pricing deflation of about 2–3 per cent in existing engagements, it is also expected to create new service opportunities in areas such as AI infrastructure, governance, data engineering and legacy modernisation.

Choice noted that mid-tier IT firms are structurally better positioned than large Tier-I players to benefit from the AI-led transition due to their agility, stronger data-engineering capabilities, diversified vertical exposure and faster margin recovery potential.

The brokerage’s long-term stock picks in the sector are Coforge, Persistent Systems, Happiest Minds Technologies and KPIT Technologies, which it sees as well placed to capture the shift toward AI-enabled, platform-led service models.

Published on March 5, 2026