Morgan Stanley has initiated coverage on Persistent Systems and Hexaware Technologies with Overweight ratings, positioning these mid-tier IT companies as potential beneficiaries of India's next technology spending cycle. According to reports from Morgan Stanley, the brokerage has set a price target of ₹6,150 for Persistent Systems and ₹600 for Hexaware Technologies. The investment thesis centers on how India's mid-tier IT companies have evolved since the previous digital cycle, now offering more diversified service offerings, expanding into new geographies, and increasingly competing for large deals. As per Morgan Stanley, such companies offered relatively higher growth visibility and opportunities to expand their total addressable markets as artificial intelligence and other technology shifts reshape the IT services industry.
Morgan Stanley views Persistent Systems as a structural beneficiary of the new technology cycle, expecting the company's US-dollar revenue and earnings per share to compound at roughly 17-18% annually between CY26 and CY28. As reported by Morgan Stanley, the brokerage points to Persistent's track record of moving into higher-growth areas, expanding capabilities from product engineering to enterprise IT and AI-led revenue pools, and its ability to win large deals. The company is positioned as a structural growth play with strong fundamentals supporting sustained expansion. Latest market data shows Persistent Systems shares trading at ₹2,889.90 on NSE, down 2%.
Morgan Stanley expects Hexaware to deliver roughly 9.5% revenue CAGR and 17% EPS CAGR over CY26-28, with the potential recovery tied to client-specific issues reversing. According to the brokerage's analysis, Hexaware's recovery is supported by its cash-flow profile and success in vendor-consolidation exercises across its largest accounts. The company is being viewed through a recovery lens, offering investors an opportunity to capitalize on potential turnaround in client relationships and operational efficiency. As per Morgan Stanley, the recovery is supported by Hexaware's cash-flow profile and success in vendor-consolidation exercises across its largest accounts.
Market performance showed mixed signals with Sensex and Nifty opening lower as autos faced pressure, while IT stocks provided some support. Among Sensex stocks, Infosys, Kotak Mahindra Bank, TCS, HDFC Bank and HCL Technologies were among the leading gainers, while M&M, UltraTech Cement, Bharat Electronics, Larsen & Toubro and InterGlobe Aviation were among the major laggards. Private banks provided some support to the market, with the Nifty Private Bank index gaining 0.63%. Nifty Bank and Nifty Financial Services were also marginally higher, indicating selective strength in financial services.
The key risk identified by Morgan Stanley remains the impact of AI-led productivity gains on traditional IT services. According to the brokerage's analysis, while generative AI is expected to create new revenue pools, there are potential concerns about deflation, revenue cannibalisation and the need for continued investment in skills and technology. Despite these challenges, Morgan Stanley believes the new technology cycle could favor IT challengers over traditional Tier-1 vendors, with the shift towards AI-led spending creating opportunities for smaller, more agile companies to enter accounts through smaller projects and subsequently expand their client spending share. Foreign investor selling remained a key concern, with Geojit Investments reporting that foreign institutional investors sold equities worth ₹20,128 crore over the previous two trading sessions.
