Coforge, Mastek, Tata Tech, Wipro, Mphasis, TechM: Why IT stocks are falling today? Stocks to buy

IT stocks such as Coforge Ltd, Mastek Ltd, Tata Technologies Ltd, Wipro Ltd, Zensar Technologies Ltd and Mphasis Ltd took a beating in Friday's trade amid fears of a slowing US economy and rising inflation. Uncertainty has crept in the US economic outlook ever since domestic IT firms reported Q3 results, with trade war now seems all but imminent.

Recalcitrant inflation has pushed out Fed rate cut hopes and plunged consumer confidence in the US. Such uncertainty is anathema to IT Services demand, JM Financial said. To make matters worse, it has coincided with clients’ budgeting cycle. Two of the three guidance into Calendar 2025 – Accenture and Capgemini imply no organic growth acceleration in FY26. The third one, that is Cognizant suggests otherwise.

"But that is more a reflection of Cognizant's own turnaround than broader demand environment, in our view. In our recent interactions with IT services players, we picked up sporadic instances of pause in transformation programs by large US banks. This, if spreads, could put Street’s (and ours) FY26 growth estimates at risk," JM Financial warned.

Mastek shares plunged 6.88 per cent to Rs 2,207.90. Tata Tech tumbled 6.85 per cent to Rs 666.05. Newgen, Zensar and Sonata Software declined 2 per cent each. Mphasis, Tech Mahindra Ltd, Tanla Platforms and Wipro slipped up to 6 per cent. Persistent Systems and Cyient also fell 4-5 per cent.

Excluding fundamental reasons, HSBC noted that IT stocks have outperformed in the past when rupee depreciates or the rest of the market sees a sharp EPS cuts. But today, the IT pack is at a 40 per cent premium to the broader market, which is higher than the historical five-year average of 28 per cent, though it has fallen from the recent peak of 50 per cent.

"We think the overall market (NIFTY) earnings downside risk is slightly more than IT now. We estimate EPS downside risk for IT is 2-3 per cent (average) while EPS growth for IT is 10-11 per cent vs market (NIFTY proxy) earnings growth of 14 per cent. Considering the fundamental outlook and relative valuations to the market, we think it will be tough for IT sector to outperform the market in 2025/FY26," HSBC said.

For now, JM Financial has kept its estimates and target prices unchanged as it seeks more evidence. But it suggested a flight to safety, that is, stocks with earning resilience and valuation buffer. JM Financial said Tata Consultancy Services Ltd (TCS) and Infosys Ltd ticked those boxes.

Kotak said it likes Infosys and TechM among tier 1 players and Coforge, Indegene and LTIM among mid-tier stocks. The weak business momentum leads it to maintain a cautious view on ERD companies despite the 18-36 per cent decline in stock prices in the past year.

"Plenty of other use cases are in the PoC stage but do not appear to be promising enough for them to be implemented at scale in the medium term. The increase in AI capabilities and a reduction in costs over time will boost AI adoption, driving new opportunities for Indian IT services providers. However, increased efficiency in software development, BPO and other service lines can lead to revenue deflation," Kotak said.