IT stocks face earnings downgrade risk in FY27, Jefferies says while highlighting top picks

Indian IT stocks run the risk of earnings downgrade in financial year 2027 and that risk could weigh on the price-and-earnings multiples of these companies, brokerage firm Jefferies wrote in its note on Tuesday, January 6. 

Jefferies has highlighted Infosys and HCLTech among its top pick from within the largecap space, while Coforge, Sagility, IKS and Mphasis are its top picks within the midcap IT space, given the potential of their Earnings Per Share (EPS) to grow at a Compounded Annual Growth Rate (CAGR) of 14% to 27% between financial year 2026-2028.

The brokerage has upgraded IKS Health to "buy" with a price target of 2,010 per share. Meanwhile, Hexaware Tech had been downgraded to "hold" from its earlier rating of "buy" with a price target of ₹820 per share, as it expects a weak earnings outlook to weigh on the stock.

Demand drivers for 2026

Jefferies, in its note on the outlook on IT stocks, stated that the recent geopolitical developments could dampen discretionary spending sentiment, even though outlook for US economic growth is improving.

Over the weekend, the US

launched land strikes on Venezuela, leading to the capture of its President Nicolas Maduro and his wife.

The brokerage said AI will continue weighing on growth in 2026 as more clients ask for productivity benefits, even though it is a positive over the long-term.

Jefferies said the share of hardware spend in overall IT budgets should rise further in 2026, thereby dragging IT services spend.

FY27 outlook

Jefferies said it expects growth to improve slightly to 4.7% in the financial year 2026. This is lower than the consensus US-dollar revenue growth expectation of 5.8% in FY27, it said. However, it warned that the consensus estimates are currently optimistic.

The brokerage also expects margins to remain range-bound, although favourable forex moves partially offsetting cost pressures from changes in the H-1B policy and the AI-led demand pressures.

Most of the stocks on the Nifty IT index are trading with gains led by Persistent Systems and Mphasis who are up 1% each, while Coforge, TCS and Wipro are trading with gains between 0.5% to 1%.

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