TCS, Infosys, Wipro: Nirmal Bang sees midcap IT stocks to outperform, check target prices

Domestic brokerage firm Nirmal Institutional Equities remain largely positive on domestic IT companies, ahead of the upcoming results season for the March 2025 quarter (Q4FY25). The brokerage firm believes that midcap IT players will outperform their larger peers as the sector stares at cautious exit for the financial year 2024-25.

Nirmal Bang expects Q4 growth to be sluggish for the largecap IT firms (Tier-I), while outperformance for midcap IT names (Tier-II) will continue on growth parameters. A cautious demand narrative and conservative guidance for FY26 may mark the following earning season, it said. To recall, IT stocks have been hammered hard amid the tariff turmoil in the global markets.

Discretionary spending recovery is under pause again with new uncertainties from US tariffs rolling out which will lead to rising trade war and slower Fed rate cut cycle. This will keep the clients for most of our coverage universe under the wait and watch mode. Noting the uncertainty, FY26E could end up similar to FY25 leading to a cut in earnings estimates for FY26-27E, it said.

Despite a 2 per cent recovery on Tuesday, Nifty IT pack is still 30 per cent down from its 52-week high. The index has tumbled nearly 14 per cent in the last one month, signaling the muted sentiments for the IT stocks amid the global meltdown on the back of Trump's reciprocal tariffs.

Operating margins’ resiliency is likely to continue sequentially (quarter-on-quarter) but to stay weak on a year-on-year (YoY) basis. However, divergence in EBIT margin performance will be there due to a mismatch in timings of wage hikes and seasonality. Tier-II’s to deliver steady to strong margin performance for Q4, Nirmal Bang said.

"Street expectations already factor in a weaker FY26, taking the valuations to a 10yr mean for our coverage universe. We model -1 per cent to 0.6 per cent constant currency (CC) revenue growth in Q4 for Tier-Is and management commentary on deal conversions, hiring, and AI monetization will be closely tracked," it added.

All the 10 IT counters from the Nifty IT pack were trading in green on Tuesday, lead by Infosys, which gained nearly 3 per cent in the early trade. It was followed by Coforge which was up 2.6 per cent, while Persistent Systems and Mphasis rose 2 per cent each. Tata Consultancy Services (TCS), which is set to share its results on Thursday, April 10, was up by merely half a per cent.

In the largecap pack, Nirmal Bang has 'buy' ratings on TCS with a target price (TP) of Rs 3,973, Infosys with a target price of Rs 1,709 and HCL Tech with a target price of Rs 1,676. It has suggested a 'hold' tag on Wipro and Tech Mahindra with target prices of Rs 262 and Rs 1,495, respectively.

Among the Tier-II IT stocks, it has suggested to 'buy' LTIMindTree (TP: Rs 4,838), Persistent Systems (TP: Rs 5,422), and Coforge (TP: Rs 7,946). It has a 'hold' rating for Mphasis (TP: Rs 2,280), Zensar Technologies (TP: Rs 717) and Birlasoft (TP: Rs 411) from the broader market IT counters.