Kotak Institutional Equities has downgraded both Infosys and TCS to 'Add' from 'Buy' while LTM has been downgraded to 'Sell' from 'Reduce' in its latest note dated August 21, 2026. The brokerage cited a sharp rally in stock prices from recent lows as a key factor behind these downgrades, with Infosys shares down 0.6% at ₹1,128.30 and TCS trading 0.59% lower at ₹2,284.50 on Friday. LTM shares fell 2.1% to ₹4,457.20, with the stock remaining flat year-to-date. While price targets on Infosys and TCS have been left unchanged at ₹1,200 and ₹2,450 respectively, LTM's price target has been raised marginally to ₹4,150 from ₹3,900 earlier. The brokerage noted that execution strength has not been sufficient to pull away from the gravity of industry headwinds and client-specific issues for LTM. Indian IT stocks were trading lower on Friday, with the Nifty IT index dipping 1% intraday to 30,337, extending its decline over the previous five sessions to about 2.5%. The index is down about 19% so far this year, compared with a 7.3% decline in the Nifty 50.
CLSA has also recently downgraded several IT names, citing a difficult operating environment as AI-led deflation weighs on legacy managed services, while macroeconomic headwinds continue to cloud technology spending. CLSA downgraded Infosys to 'Hold' from 'Outperform' while raising its target price to ₹1,147 from ₹1,109. TCS was cut to 'Hold' from 'Outperform' with the target price raised to ₹2,326 from ₹2,165. Tech Mahindra was downgraded to 'Hold' with a target price of ₹1,634. However, CLSA maintains more constructive views on mid-tier IT companies, which it believes are better positioned to benefit from major shifts in technology spending and AI adoption. Persistent Systems remains a high conviction outperform with a raised target price to ₹6,246 from ₹6,166, while Coforge retains a high conviction outperform rating with a target price of ₹2,170. CLSA maintained outperform on LTM and Hexaware, while raising their target prices to ₹5,534 and ₹730, respectively.
Kotak Institutional Equities has issued mixed signals on defence stocks following the Ministry of Defence's 6th Positive Indigenisation List (PIL), which includes 405 items worth approximately ₹3,100 crore for domestic manufacturing. The brokerage maintains Hindustan Aeronautics (HAL) as its preferred pick with an 'Add' rating and fair value of ₹5,305, implying a 4% upside potential. However, Kotak has issued 'Sell' ratings on Cochin Shipyard (₹860 fair value, 42% downside) and Mazagon Dock (₹1,950 fair value, 25% downside) while rating Bharat Electronics 'Reduce' with ₹420 fair value and 2% upside. The brokerage notes that 56% of the items in the latest list are linked to BEL, covering components for radars, sonars, satellite communication systems, and fire-control systems, though it remains cautious on the stock due to concerns about how much opportunity is already reflected in current prices.
Kotak Institutional Equities has highlighted four key themes emerging from recent events that are impacting the IT sector. Pricing pressure remains high as deals are insufficient to support growth aspirations of Indian IT companies, while the concerns pertaining to the terminal value of Indian IT Services have reduced, providing a floor to valuations. The debate between open source and closed models continues where open weight models are raising services intensity and driving deflation. For Infosys, Kotak noted that it is at a slight disadvantage in the current phase of enterprise AI adoption due to marginally higher exposure towards application services, with the brokerage warning that it is set to underperform on organic growth compared to TCS, HCLTech and Cognizant in financial year 2027. TCS faces the highest challenge dealing with AI-led deflation in its base business, with the inorganic strategy starting off with couple of 'unexciting acquisitions', though the data center play remains interesting but in initial stages. The brokerage's fourth key theme is the continued shift in client spending towards challengers, with Kotak expecting challengers to continue gaining wallet share and said it prefers 'challengers and hybrids over incumbents'. Tech Mahindra, Coforge, Hexaware Technologies and Indegene are Kotak's preferred picks, with the preference broadly echoing CLSA's argument that mid-tier IT vendors are better placed to benefit from structural changes in the industry.
Kotak Institutional Equities has made significant changes to its model portfolio, cutting TCS, DLF, and Lodha by a combined 460 basis points and reallocating these funds into Adani Ports and SEZ, Eternal, GMR Airports, HDFC Life, HDFC Nifty 50 ETF (HNDL) and SHFL. According to reports from Essential Business Intelligence, the brokerage cited IT and realty valuations turning shaky as the primary driver for these changes, with the firm rotating into ports, insurance and infrastructure sectors instead. The 4.6% weight freed up by the exits is being redistributed across six stocks, with the sharp recovery in stock prices from the March-April 2026 lows reducing the number of attractive opportunities.
DLF and Lodha, together accounting for 2.8% portfolio weight, were removed due to concerns over stagnating residential volumes and affordability pressures, according to Essential Business Intelligence. Both stocks had already delivered strong gains with DLF rising 32% and Lodha jumping 84% from the March-April market lows. However, Kotak said it remains a "firm believer" in India's long-term housing prospects despite the current challenges, with the brokerage pointing to concerns around stagnant industry volumes and affordability pressures.
The brokerage's preference for mid-tier IT companies comes after a challenging period for the sector, with the Nifty IT index falling 3.94% over three trading sessions before staging a modest rebound. HCLTech lost 5.3%, Infosys declined 5%, and TCS fell 4% during the decline, while HCLTech rose 1.36% and Infosys gained 1.04% in the rebound. IT stocks outperformed the broader market with the Nifty IT up 0.76% at 30,441.80 while the Nifty 50 declined 0.15%. Following CLSA's latest downgrades, Coforge, Persistent Systems and HCL Tech shares jumped around 2% to lead gains, while LTI Mindtree, Infosys, and Wipro shares gained around 1% each. Kotak Institutional Equities continues to favour two broad themes – domestic discretionary services and domestic manufacturing. Financials remain a major preference with the brokerage believing banks and insurance companies are trading at attractive valuations despite near-term challenges. The firm expects Nifty net profit to grow 18% in FY27 and 14% in FY28 following the 8% growth in FY26.
