IT stocks: Jefferies sees rerating scope in Infosys, TCS, Sagility

Jefferies has raised its target prices for Infosys and Tata Consultancy Services while identifying Sagility as another potential beneficiary of higher valuations in Indian IT stocks. The brokerage’s best-case framework points to more than 20% rerating potential for Infosys and TCS and more than 50% for Sagility, according to Economic Times Markets’ October 21 report.

The call is not an across-the-board bullish recommendation. Jefferies retained a Hold rating on Infosys and an Underperform rating on TCS, even as it lifted their price targets. Its argument rests on growth expectations stabilising rather than a sharp acceleration in earnings.

Higher targets, but cautious ratings

The brokerage increased its Infosys target to ₹1,160 from ₹1,020 and its TCS target to ₹2,125 from ₹1,800. It identified the two as its preferred large-cap names for the valuation opportunity.

According to Jefferies’ estimates, both companies’ current valuations imply constant-currency revenue growth of just 1%–3% over FY26–FY36. That leaves scope for investors to assign higher earnings multiples if expectations stop weakening and the companies avoid fresh disappointments.

Rerating means a change in the valuation multiple investors are willing to pay, rather than necessarily an increase in earnings. The brokerage’s scenario-based rerating estimates should therefore not be read as assured share-price returns or confused with its published target prices.

October’s rally has outpaced earnings revisions

The Nifty IT index had risen about 14% in October at the time of the report, with some individual stocks gaining as much as 20%. Jefferies attributed much of the move to higher price-to-earnings multiples rather than upward revisions to revenue or profit estimates.

Sentiment improved as IT companies continued to grow despite weak macroeconomic conditions and concerns that artificial intelligence could curb technology spending. Consensus expectations for FY28 US-dollar revenue growth remained broadly steady after second-quarter results, unlike the revisions following the preceding two quarters.

For the brokerage, that stability matters: selected stocks could benefit even without a strong earnings recovery, provided the growth outlook does not deteriorate further. It also suggested that worsening sentiment towards global AI capital expenditure could contribute to a rerating in those names.

Why Sagility stands out

Among mid-cap technology companies, Jefferies identified Sagility as offering the strongest rerating potential. It estimated that the growth assumptions embedded in the company’s valuation were about six percentage points below its historical trajectory and assessed its downside risk as lower than that of mid-cap peers.

Across the sector, current valuations imply organic constant-currency revenue growth of 0%–9% for large-cap companies and 6%–14% for mid-caps over FY26–FY36, according to the brokerage. For most companies, those assumptions are two to four percentage points below growth achieved during FY16–FY26.

Infosys and Sagility show a larger gap of about six percentage points. By contrast, Coforge’s valuation implies growth broadly matching its historical performance, while Tech Mahindra and Mphasis already price in growth above their past trajectories. These are growth assumptions inferred from valuations, not reported revenue outcomes.

The limits to the valuation opportunity

Jefferies cautioned that the risk-reward balance becomes less attractive for large-cap IT stocks above 17–18 times earnings unless the growth outlook improves materially.

Its best-case framework allows for large-cap valuations of 15–22 times earnings and mid-cap valuations of 22–47 times. The estimates of more than 20% rerating potential for Infosys and TCS and more than 50% for Sagility sit within that conditional framework.

The downside case is markedly different. If IT companies deliver no further growth beyond FY29, Jefferies estimates that the sector could be valued at 12–13 times earnings. Sustaining long-term revenue growth would support a more favourable outcome.

The central distinction for investors is between a recovery in confidence and a recovery in underlying business growth. Jefferies sees room for the former, but its retained ratings and downside scenarios underline the limits of the call. These are brokerage views, not investment recommendations from BharatVox.