TCS and Tech Mahindra have been up smartly in trade today as the tech stocks participated in the broad based buying seeing after 10 consecutive sessions of loss. The brokerage firm, Kotak Institutional Equities has upgraded Tata Consultancy Services (TCS) and Tech Mahindra to ‘Buy’ following a sharp correction in Indian IT stocks over the past month.
The brokerage firm sees a reasonable upside in select stocks despite expectations of another year of moderate growth for the sector. While FY2026 is projected to be slightly better than FY2025, IT services companies continue to face challenges due to slower discretionary spending, an uneven sectoral recovery, and the impact of AI adoption.
Let’s take a look at the key reasons why Kotak Institutional Equities upgraded TCS and Tech Mahindra:
Kotak Institutional Equities: Stock price correction creates an attractive entry point
Indian IT stocks have seen a significant correction, with prices dropping between 9% to 21% in the past month. This decline, according to Kotak Institutional Equities, provides a more favorable valuation for investors looking to enter the sector.
“We upgrade TCS and Tech Mahindra to BUY and Mphasis to REDUCE from SELL. All changes in ratings are due to the steep stock price correction,” the brokerage noted.
ALSO READJust released: Motilal Oswal’s top 11 mid and small cap buy ideas Kotak Institutional Equities: Improved growth prospects in FY2026
While growth expectations remain moderate, FY2026 is expected to be better than FY2025. According to the brokerage house, revenue growth for large IT firms is projected to be in the range of 1.8% to 6.8% in FY2026, compared to a weaker (-2.1% to 4.4%) performance in FY2025.
A gradual recovery in discretionary spending, regulatory-driven IT investments in the US banking sector, and early signs of improvement in retail are expected to support growth. However, other industries like healthcare, telecom, and manufacturing continue to see weak demand due to cost-cutting measures and macroeconomic uncertainties.
Kotak Institutional Equities: AI-led disruption may benefit some player
AI adoption is reshaping IT services spending, with enterprises prioritizing cost savings and efficiency improvements. While AI-led automation may create some revenue deflation, the brokerage believes companies with strong AI capabilities and diversified service offerings could emerge stronger.
“GenAI will benefit challengers while incumbents face a challenge to adapt,” the brokerage noted in its report.
» Read More
