IT Sector Outlook: The pressure on IT stocks appears to be easing, supported by renewed optimism around a global surge in artificial intelligence (AI) spending and resilient demand for software services. Sector heavyweights have led the recovery, helping the Nifty IT index rebound sharply from its recent lows.
IT stocks have gained more than 15 per cent from the lows touched in May, reflecting improving investor sentiment after months of weakness driven by concerns over global growth and discretionary technology spending.
While macroeconomic uncertainties persist, the recent rally suggests investors are increasingly positioning for AI-led growth opportunities and a stronger demand outlook for software, cloud and digital transformation services. From a short-term returns perspective, the IT index has also started to show encouraging signs of strength after a prolonged period of underperformance.
| Timeframe | Return % |
| 1 Week | 2.3% |
| 1 Month | 0.7% |
| 3 Months | -2.4% |
| 6 Months | -21.9% |
| 1 Year | -19.7% |
| 5 Years | 9.5% |
Morgan Stanley Turns Constructive on IT Stocks
The improving sentiment has also found support from global brokerage Morgan Stanley, which has adopted a more constructive view on select Nifty IT heavyweights. The brokerage maintains a positive-to-neutral stance on Infosys, HCL Technologies and Tata Consultancy Services, and expects these stocks to deliver upside of up to 28 per cent from current levels.
Morgan Stanley has maintained its ‘Equal Weight’ rating on Infosys with a target price of Rs 1,380, implying an upside potential of 12.4 per cent from current levels.
The brokerage highlighted that Infosys has reiterated its FY27 revenue growth guidance of 1.5-3.5 per cent in constant currency and an EBITDA margin guidance of 20-22 per cent. Management expects stronger seasonality in the first half of FY27 and continues to view technology adoption as a key growth driver.
Brokerage Sees Nearly 18% Upside
Morgan Stanley has also maintained an ‘Equal Weight’ rating on HCL Technologies, with a target price of Rs 1,410, indicating an upside potential of nearly 18 per cent.
The brokerage noted that HCLTech’s FY27 guidance assumes a stable macroeconomic environment. AI services are expected to grow by around 30 per cent, contributing nearly 30 per cent of total revenue over time. Morgan Stanley also expects margins to improve despite ongoing technology-led revenue deflation across certain service lines.
Morgan Stanley’s Preferred IT Pick
Among the three large-cap IT companies, Tata Consultancy Services (TCS) remains Morgan Stanley’s preferred pick. The brokerage has maintained its ‘Overweight’ rating on the stock and assigned a target price of Rs 2,880, implying an upside potential of approximately 28 per cent.
Morgan Stanley said TCS continues to witness broad-based decision-making delays among clients in Q1FY27. However, the company is expanding its AI partnerships and remains well-positioned to benefit from rising enterprise AI adoption. While wage hikes could exert near-term pressure on margins, the brokerage expects Hypervault’s data centre business to generate attractive returns and support long-term growth.
| Stock Name | Share Price Target | Upside% |
| Infosys | Rs 1,380 | ~12% |
| HCL Technologies | Rs 1,410 | ~18% |
| Tata Consultancy Services (TCS) | Rs 2,880 | ~28% |
IT Sector Growth Cycle May Be Turning
Looking at the broader picture, Sandeep Agarwal of Sowilo Investment Managers believes the turnaround phase for the IT sector has begun.
He said that after witnessing near-zero growth over the last couple of years, he expects the sector to deliver 6-7 per cent growth annually over the next two to three years.
Agarwal noted that currency benefits were previously offset by aggressive localisation in developed markets, which increased the share of local employees from 20-23 per cent to 65-70 per cent.
In simpler terms, Agarwal said that while rupee weakness previously benefited the sector, those gains were largely offset by the rising share of higher-cost local employees. Now that localisation has largely stabilised, future currency benefits could flow more directly into profits.
PAT growth could rise 70% over next 2-3 years
On the outlook, he said those localisation-related pressures have largely peaked, allowing currency benefits to be reflected more meaningfully in company performance.
He expects “almost 20 per cent growth” and estimates that the profit after tax (PAT) of most IT companies could rise by nearly 70 per cent from current levels over the next two to three years.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
