Global brokerage CLSA has advised investors to reduce exposure to Indian IT stocks ahead of the Q3 earnings season, citing a sharp recent rally, valuations entering a fair zone, and expectations of largely soft operating performance in the December quarter.
The brokerage highlighted that NIFTY IT has risen nearly 14 percent quarter-to-date, significantly outperforming the NIFTY 50, which is up around 4 percent during the same period. According to CLSA, this outperformance leaves limited room for further valuation upside in the near term, especially with muted earnings momentum expected in Q3 FY26.
Valuations Enter Fair Zone After Strong Rally
CLSA noted that the recent surge in IT stocks has already factored in a recovery narrative. With demand conditions still uneven across geographies and verticals, the brokerage believes risk-reward is no longer compelling at current levels for the sector as a whole.
Key Rating Changes: HCL Tech and Tech Mahindra
As part of its revised outlook, CLSA announced multiple rating changes.
HCL Technologies has been downgraded from Outperform to Hold.
Tech Mahindra has been downgraded from High Conviction Outperform to Outperform.
Tech Mahindra has also been removed from the CLSA Focus List.
CLSA stated that Tech Mahindra’s revenue growth recovery over the past 1.5 years has not kept pace with its own expectations or broader consensus estimates. Meanwhile, HCL Tech is currently trading at around a 5 percent valuation premium compared to peers like TCS and Infosys, which the brokerage finds difficult to justify given near-term growth visibility.
CLSA’s Preferred Picks Within the IT Space
Despite the cautious stance on the sector, CLSA continues to selectively favor certain names based on earnings visibility and business mix.
Mid-cap top picks: Persistent Systems and Coforge.
Large-cap preferences: Infosys and Tech Mahindra.
Stock-Wise Ratings and Target Prices (as per CLSA)
CLSA’s latest stock-specific recommendations and target prices are as follows.
Persistent Systems
Rating: High Conviction Outperform
Target Price: Rs 8,731
Upside: 39.1 percent
Coforge
Rating: Outperform
Target Price: Rs 2,411
Upside: 45.6 percent
LTIMindtree
Rating: Outperform
Target Price: Rs 7,064
Upside: 15.5 percent
Tata Consultancy Services
Rating: Outperform
Target Price: Rs 3,601
Upside: 11.6 percent
Infosys
Rating: Outperform
Target Price: Rs 1,814
Upside: 11.3 percent
Tech Mahindra
Rating: Outperform
Target Price: Rs 1,705
Upside: 6.1 percent
HCL Technologies
Rating: Hold
Target Price: Rs 1,692
Upside: 3.5 percent
Wipro
Rating: Hold
Target Price: Rs 237
Downside: 11.3 percent
Overall Outlook
CLSA’s report suggests that while the long-term structural story for Indian IT remains intact, the near-term setup ahead of Q3 earnings calls for caution. With valuations no longer cheap and earnings growth expected to remain subdued, the brokerage recommends a selective and stock-specific approach rather than broad-based sector exposure.
Disclaimer:
This article is for informational and educational purposes only and does not constitute investment advice, financial advice, or a recommendation to buy, sell, or hold any securities. The views and target prices mentioned are based on brokerage reports and publicly available information and may change without notice. Readers are advised to conduct their own research and consult with a certified financial advisor before making any investment decisions. The author and the website shall not be responsible for any financial losses arising from the use of this information.
