Global brokerage firm UBS maintains a selective stance on the Indian IT sector, acknowledging that while artificial intelligence (AI) is creating new growth opportunities, AI-related revenues still account for a relatively small share of overall industry revenue. According to reports from CNBC TV18, the brokerage continues to prefer Tier-2 IT companies over their Tier-1 peers, citing relatively better growth and valuation opportunities in the mid-cap segment. The recent rally in Indian IT stocks has prompted UBS to reassess its sector outlook, with the brokerage noting that part of the recent Nifty IT rally reflects a rotation away from global AI infrastructure and semiconductor beneficiaries and into Indian IT services. As per Business Upturn, UBS says several of the structural concerns that have weighed on Indian IT Services stocks are being challenged, and many of the counter-arguments have genuine merit, though the evidence required to justify a broad-based bullish stance on the sector remains limited. The latest assessment adds to a series of brokerage reports grappling with the implications of AI for India's IT services industry, with CLSA and Kotak Institutional Equities recently advocating similar selective approaches.
Within the mid-cap segment, UBS has upgraded Coforge and Mphasis to 'Buy' from 'Neutral', as reported by CNBC TV18. The price target for Coforge has been raised to ₹2,400, representing a 59% increase from the previous target of ₹1,505. Similarly, Mphasis has been upgraded with its target price increased to ₹2,980 from ₹2,440. These upgrades reflect the brokerage's positive outlook on these companies' growth prospects and valuation positioning, with UBS noting that enterprise AI adoption is creating demand around implementation, integration, data readiness, governance and workflow redesign. According to Business Upturn, the pattern across UBS' nine calls shows active reshuffling rather than uniform re-rating, with mid-cap names showing stronger execution getting upgraded and re-rated higher. Among the Tier-1 companies, UBS has upgraded Tech Mahindra to 'Buy' from 'Neutral' and raised its price target to ₹1,865 from ₹1,460, as reported by CNBC TV18. The latest UBS report reveals that Coforge has the highest recalculated upside potential at about 27%, followed by Mphasis at 22.6% and Tech Mahindra at 17.8%, based on the brokerage's target prices and reference values.
Among large-cap IT companies, UBS has downgraded HCL Technologies to 'Neutral' from 'Buy' while raising its price target to ₹1,415 from ₹1,390. The brokerage has also downgraded Persistent Systems to 'Neutral' from 'Buy', with a target price of ₹6,250 from ₹5,995, primarily on valuation grounds following the stock's recent run-up. UBS has maintained its 'Buy' rating on Infosys with a raised target price of ₹1,445 from ₹1,425, as reported by CNBC TV18. The brokerage has retained its 'Neutral' rating on TCS while raising the target to ₹2,565 from ₹2,545. Wipro remains at 'Neutral' with a target of ₹200, while L&T Technology Services stays at 'Neutral' with the target raised to ₹4,995 from ₹4,080. LTIMindtree was maintained at 'Neutral' with its target hiked to ₹4,995 from ₹4,080, as reported by Business Upturn. These downgrades were valuation-driven rather than calls on deteriorating fundamentals, with UBS preferring companies that score well on its own framework and are showing visible execution momentum.
According to UBS' latest report, Coforge carries the highest recalculated upside at about 27.1%, followed by Mphasis at 22.6% and Tech Mahindra at 17.8%. UBS raised its target valuation multiple to 30 times FY28-29 estimated earnings for Coforge from 21 times, citing strong Q1FY27 performance that provided greater confidence in the Encora acquisition integration. The brokerage noted that Coforge's executable order book reached a record US$2.2 billion at the end of Q1FY27, with the forward revenue-to-executable order book ratio of about 1.2 times supporting growth estimates. For Mphasis, UBS raised its target valuation multiple to 22 times FY28-29 estimated earnings from 19 times, noting the company reported 7.7% year-on-year revenue growth in Q1FY27 and expects FY27 revenue growth of 9.4%. The brokerage expects Tech Mahindra to deliver more than 5% FY27 revenue growth compared with about 2% expected industry growth, with quarterly TCV exceeding US$1 billion for three consecutive quarters. UBS raised Tech Mahindra's target valuation multiple to 19 times FY28-29 estimated earnings from 16 times, citing better-than-expected execution with revenue growth running ahead of the industry.
Indian IT shares were mostly lower on Tuesday morning, with the Nifty IT index falling 0.72% to 30,377.70 compared with a 0.25% decline in the Nifty 50 and a 0.17% fall in the Sensex. HCLTech fell 1.56% to ₹1,301.40, while Tech Mahindra was down 1.15% at ₹1,565.80. Persistent Systems declined 1.1% to ₹5,631.50, and TCS fell 0.83% to ₹2,265.20. Wipro declined 0.79% to ₹179.87 and Infosys slipped 0.54% to ₹1,123.90. Mphasis was down 0.49% at ₹2,415.20 and LTM fell 0.34% to ₹4,510.20. Coforge was the sole Nifty IT constituent in the green, gaining 0.25% to ₹1,877.60. The current market performance reflects ongoing uncertainty about whether AI-driven opportunities will be large enough to compensate for deflation in legacy services, with the brokerage's selective approach becoming increasingly important as Nifty IT has risen nearly 20% from its July lows.
