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What is the story about?
Brokerage firm Jefferies has ended its "underweight" stance on the Indian IT sector and also added shares of Infosys Ltd. to its model portfolio. It highlighted this in its latest India strategy note on Monday, July 27.
In the note, authored by Mahesh Nandurkar and his team, Jefferies highlighted three major reasons behind the change in its stance.
First, Jefferies noted that the Indian IT sector is down 25% so far this year, with the top four players, TCS, Infosys, HCLTech and Wipro declining between 35% to 50% from their two-year peaks and are now trading at price-to-earnings multiples of 13 times to 17 times.
Second, although the brokerage sees revenue growth in the IT stocks to be in the low-to-mid-single digits over financial year 2026-2028, the reversal of the AI trade could drive a tactical upside in the sector, particularly after the sharp drawdown.
Lastly, the brokerage noted that the negative stock reaction to negative sector news has been much softer recently, indicating a tactical bottom. Infosys also cut the upper end of its financial year 2027 revenue growth guidance by 50 basis points to 1.5% to 3% from 1.5% to 3.5% earlier. Yet, the stock ended only 0.8% lower on Friday, having recovered from an intraday drop of 3%.
As a result, Jefferies has added Infosys to its model portfolio and raised its weightage on Coforge. It will fund its now "neutral" stance on IT by trimming its large "overweight" positions in power, real estate and hospitals.
Jefferies note in its note that several foreign portfolio investors (FPIs) had been running significant "underweights" on India, although their meetings in the last two weeks suggest that these positions are now either being reversed or re-evaluated.
"As more focus shifts to the cost-benefits of AI, Indian equities could get some respite," Jefferies note said, adding that the AI trade has not only drawn FPI flows out of India, but also raised concerns on the potential fallout if the sudden job losses were to hit the industry.
Over the last five weeks, FPI flows have been a net positive $3 billion, ending the trend of the last four months, where overall outflows have been worth $29 billion.
Shares of Infosys are now trading 3.5% higher on Monday at ₹1,076.5. The stock is still down 34% so far this year.
In the note, authored by Mahesh Nandurkar and his team, Jefferies highlighted three major reasons behind the change in its stance.
First, Jefferies noted that the Indian IT sector is down 25% so far this year, with the top four players, TCS, Infosys, HCLTech and Wipro declining between 35% to 50% from their two-year peaks and are now trading at price-to-earnings multiples of 13 times to 17 times.
Second, although the brokerage sees revenue growth in the IT stocks to be in the low-to-mid-single digits over financial year 2026-2028, the reversal of the AI trade could drive a tactical upside in the sector, particularly after the sharp drawdown.
Lastly, the brokerage noted that the negative stock reaction to negative sector news has been much softer recently, indicating a tactical bottom. Infosys also cut the upper end of its financial year 2027 revenue growth guidance by 50 basis points to 1.5% to 3% from 1.5% to 3.5% earlier. Yet, the stock ended only 0.8% lower on Friday, having recovered from an intraday drop of 3%.
As a result, Jefferies has added Infosys to its model portfolio and raised its weightage on Coforge. It will fund its now "neutral" stance on IT by trimming its large "overweight" positions in power, real estate and hospitals.
Sentiments On India Shifting
Jefferies note in its note that several foreign portfolio investors (FPIs) had been running significant "underweights" on India, although their meetings in the last two weeks suggest that these positions are now either being reversed or re-evaluated.
"As more focus shifts to the cost-benefits of AI, Indian equities could get some respite," Jefferies note said, adding that the AI trade has not only drawn FPI flows out of India, but also raised concerns on the potential fallout if the sudden job losses were to hit the industry.
Over the last five weeks, FPI flows have been a net positive $3 billion, ending the trend of the last four months, where overall outflows have been worth $29 billion.
Shares of Infosys are now trading 3.5% higher on Monday at ₹1,076.5. The stock is still down 34% so far this year.
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