New Delhi, February 23, 2026 — Global investment research firm Jefferies has issued a cautious outlook on Indian information technology (IT) stocks, downgrading several major players amid concerns related to artificial intelligence (AI) and structural shifts in client engagements.
The firm has downgraded Infosys, HCL Technologies (HCLT), and MphasiS to ‘hold,’ while categorizing LTI MindTree, Tata Consultancy Services (TCS), and Hexaware as ‘underperform’. Despite the downgrades, Coforge, Sagility, and IKS remain Jefferies’ top picks, with expectations of higher growth.
Earnings Outlook and Market Performance
Jefferies has trimmed earnings estimates for Indian IT firms by 1-4% across the board and forecasts a 6% compound annual growth rate (CAGR) in earnings over FY26-28. The research house expects Coforge, Sagility, and IKS to outperform with projected growth rates of 19-25%, driven by robust revenue growth.
The report highlights a looming shift in client engagement models towards advisory and implementation services, which now comprise 22-45% of revenues. Jefferies warns that this transition, accelerated by advancements in AI tools, could lead to revenue deflation and increased cyclicality, demanding significant changes in talent management and operating models—factors that could impact valuation multiples.
Stock Market Performance
Indian IT stocks have underperformed in 2026, with the Nifty IT index declining over 15%, compared to a nearly 2% dip in the broader Nifty 50 index, according to ACE Equity data. Major losers include Wipro, Coforge, LTI MindTree, Persistent Systems, Infosys, and TCS, which have each fallen up to 20%.
Earnings and Valuation Projections
Jefferies notes that current stock prices reflect a revenue CAGR of 6-14% for large IT firms and 9-17% for mid-sized firms over FY26-36. Terminal growth rates are estimated between 4% (Wipro) and 7% (IKS). These growth estimates are 6-12% lower than the FY16-26E period for some companies, indicating a slowdown in long-term growth expectations.
In terms of valuations, Jefferies suggests that PE multiples could range from 14-22x for large IT firms, with Infosys, HCLT, and TCS potentially rerating by around 15%. Mid-sized firms like Hexaware could see reratings of 35-45%. However, in a worst-case scenario, stocks could decline another 30-65%, with Wipro having the lowest and Coforge the highest derating potential.
Future Outlook
Jefferies’ analysts caution that if growth slows by an additional 3% over FY26-36, and terminal growth drops by 1%, valuation multiples could decline by 10-35% for large firms and up to 15% for mid-sized players, underscoring cautious investor sentiment amid structural industry shifts.