In its report titled “Initiating coverage on mid-cap IT: In search of an AI breakthrough”, the brokerage said that mid-cap IT companies have outperformed over the last decade, aided by leadership upgrades and market share gains relative to larger peers.
BofA said its investment framework for the sector is centred around three key pillars – AI strategy, balance sheet discipline and scalability, collectively referred to as the ABS framework.
The brokerage believes these factors will determine the next leg of growth as AI reshapes the technology services landscape and mid-cap valuations continue to trade at a premium to larger peers.
Among its coverage universe, BofA initiated on Coforge with a ‘Buy’ rating and a price target of ₹1,725, citing a balanced combination of sales execution, operational discipline and successful acquisitions.
The brokerage assigned a ‘Neutral’ rating to Mphasis with a target price of ₹2,440, saying investors may need to wait for clearer evidence that the company’s AI initiatives can translate into growth and improved cash generation.
BofA started coverage on Persistent Systems and LTIMindtree with ‘Underperform’ ratings and price targets of ₹4,875 and ₹3,910, respectively.
| Cos/ | Rating/ | TP |
|---|---|---|
| Coforge | Buy | ₹1,725 |
| Mphasis | Neutral | ₹2,440 |
| Persistent | Underperform | ₹4,875 |
| LTM | Underperform | ₹3,910 |
While Persistent has emerged as one of the industry’s standout performers and is approaching the $2 billion revenue milestone, the brokerage believes current valuations leave little room for disappointment. It holds a similar view on LTIMindtree.
According to BofA, modernisation of legacy technology systems could become one of the earliest large-scale commercial applications of AI for IT services firms. The brokerage expects success in this segment to be driven by the effective deployment of AI-powered coding tools rather than traditional workforce management models.
This shift could benefit mid-cap companies by narrowing historical competitive advantages enjoyed by larger rivals. However, BofA said that large-cap IT firms still retain an edge in AI-led business transformation projects because of their broader client relationships and deeper industry expertise.
Within its coverage universe, the brokerage sees Coforge and Mphasis as better positioned to benefit from technology modernisation trends, while Persistent stands out in intellectual property-led innovation.
On capital allocation, BofA said concerns around large deal wins at mid-cap IT companies appear manageable.
While deal structures could limit margin expansion, the brokerage does not foresee meaningful profitability dilution and views balance sheet deployment at Coforge and Mphasis as measured rather than aggressive.
The brokerage also identified technology expertise as the most important factor driving long-term scalability in the sector, ahead of domain knowledge and sales execution. On this measure, Persistent Systems has the strongest competitive moat, while Mphasis and LTIMindtree benefit from deep domain-led go-to-market capabilities.
BofA added that Coforge’s acquisition strategy has strengthened its technology and domain capabilities, complementing its sales-driven growth approach.
