JM Financial's Rajiv Berlia has issued a warning that Indian IT margins could face renewed pressure in FY28 if the rupee does not depreciate again the way it has this year. According to CNBC TV18, Berlia's base case sees a downgrade to neutral in earnings estimates for the second half of FY27, since that period is seasonally weaker for the sector and he does not expect any upgrade over that stretch. The brokerage estimates that a 1 percentage point depreciation in the rupee typically adds 15 to 20 basis points to sector margins, with the current year's 7% rupee depreciation providing a 100-120 basis point margin benefit. Berlia noted that without rupee depreciation, margins would have seen significant impact in the current sector.
Brokerage firm JM Financial has initiated coverage on Indian IT services companies with a selective approach, citing muted growth, intensifying competition and limited scope for margin expansion. According to reports from CNBC TV18, the brokerage has initiated two pair trades, recommending an 'Overweight' stance on Tech Mahindra and an 'Underweight' stance on Wipro. It has also taken an 'Overweight' view on Mphasis against an 'Underweight' stance on LTIMindtree. Among its preferred names, JM Financial has highlighted Sagility and Mphasis. The brokerage expects the benefits for Indian IT services companies from improving software demand to become more visible as enterprise adoption of artificial intelligence moves from experimentation to scaled deployment, though it cautioned that productivity-led revenue deflation could remain a near-term offset.
According to JM Financial, rising competitive intensity is tied to demand from clients for productivity gains linked to generative AI. Companies have agreed to pass on efficiency gains to clients before those gains have actually been realised, betting they can deliver them over time. As reported by CNBC TV18, Tech Mahindra, Infosys, and HCLTech have each flagged this dynamic in recent earnings calls, with some large deals seeing vendors commit to productivity gains of 70 to 80% for clients. Berlia described these discounts as deal-specific rather than a sector-wide pattern, but the scale of some commitments shows how far vendors are willing to go to win business in a period of slow growth. The NSE IT index has underperformed the Nifty by around 12% on a calendar year-to-date basis, with the index having slipped 23.22% this year as US-Iran war and Trump tariffs dented investor sentiment.
Despite maintaining a cautious overall stance on the sector, JM Financial holds buy or add ratings on nine of its 15 covered stocks, representing a 60% share. According to CNBC TV18, Berlia named Sagility and Mphasis as his preferred stocks in the mid-tier and smaller-tier space. He described Sagility's growth outlook as low double digits, trading at roughly 15 to 16 times estimated earnings for the next year, with the combination of growth and valuation making it attractive. On Mphasis, he pointed to improving year-on-year growth and said the growth gap between Mphasis and mid-tier peers such as Persistent Systems and Coforge could narrow going forward, which he expects would also narrow the valuation gap between them. None of the larger IT companies carry a buy rating from the brokerage, with buy and add calls concentrated in the mid-tier and smaller-tier space.
