'Trim your positions', CLSA advises on IT stocks; downgrades HCLTech, Tech Mahindra

Brokerage firm CLSA has turned cautious on the Indian IT sector, recommending that investors reduce positions after the recent rally, as Q3 FY26 earnings are expected to remain largely soft.

The brokerage said that the Nifty IT index is up 14% quarter-to-date, outperforming the broader Nifty, which has gained about 4% over the same period. CLSA said this sharp outperformance has pushed valuations closer to fair levels, limiting near-term upside.

Against this backdrop, CLSA has downgraded HCL Technologies to 'Hold' from 'Outperform' and cut Tech Mahindra to 'Outperform' from 'High Conviction Outperform'.

The brokerage has also removed Tech Mahindra from its Focus List, citing concerns that the company's revenue growth recovery over the past 18 months has not been in line with its own expectations or broader Street estimates.

CLSA added that HCL Technologies is currently trading at around a 5% valuation premium compared with peers such as TCS and Infosys.

In terms of stock preferences, CLSA continues to favour Persistent Systems and Coforge among mid-cap IT stocks, while Infosys and Tech Mahindra remain its preferred picks in the large-cap space.

The brokerage said Persistent Systems remains relatively insulated from macro headwinds, supported by strong capabilities and consistent execution.

Coforge, meanwhile, looks attractive following the recent correction in its stock price after the Encora acquisition, CLSA said.

Stock Name	Rating	Target Price (TP)	Up/Downside
Persistent Systems	High Conviction Outperform	Rs 8,731	+39.1%
Coforge	Outperform	Rs 2,411	+45.6%
LTIMindtree	Outperform	Rs 7,064	+15.5%
Tata Consultancy Services	Outperform	Rs 3,601	+11.6%
Infosys	Outperform	Rs 1,814	+11.3%
Tech Mahindra	Outperform	Rs 1,705	+6.1%
HCL Tech	Hold	Rs 1,692	+3.5%
Wipro	Hold	Rs 237	-11.3%