Jefferies Downgrades Infosys, TCS on AI Risks

Global brokerage Jefferies has downgraded several major Indian IT companies, citing concerns over artificial intelligence-led disruption and slowing revenue growth.

The firm has cut earnings estimates by 1–4% across the sector and now expects earnings to grow at a compound annual growth rate (CAGR) of 6% between FY26 and FY28.

Stocks Downgraded

Jefferies has downgraded:

• Infosys, HCL Technologies and Mphasis to “Hold”

• Tata Consultancy Services (TCS), LTI Mindtree and Hexaware to “Underperform”

However, Coforge, Sagility and IKS remain its preferred picks, with projected earnings growth of 19–25% CAGR over the same period.

AI to Reshape Revenue Models

According to the brokerage, Indian IT firms will remain relevant but may face structural shifts in their business models.

Jefferies believes that traditional application managed services — which account for roughly 22–45% of revenues for many companies — could see revenue pressure as AI tools improve.

Instead, companies may increasingly depend on advisory and implementation services. While this shift may open new opportunities, it could also increase revenue volatility.

The brokerage noted that adapting to this transition will require significant changes in talent strategies and operating models, which may not be easy to execute.

Market Performance in 2026

IT stocks have underperformed broader markets so far in calendar year 2026.

The Nifty IT index has fallen more than 15% year-to-date, compared to a nearly 2% decline in the Nifty 50 index during the same period.

Stocks such as Wipro, Coforge, LTI Mindtree, Persistent Systems, Infosys and TCS have dropped up to 20%, according to market data.

Growth Assumptions and Risks

Jefferies said current stock prices imply revenue growth of 6–14% CAGR for large IT firms and 9–17% CAGR for mid-sized firms over FY26–36.

In a best-case scenario, revenue growth could remain broadly in line with the previous decade.

However, in a worst-case scenario, revenue CAGR between FY26–31 could be 3 percentage points lower, potentially followed by stagnation beyond FY31.

The brokerage also highlighted the risk of valuation compression. In the best case, price-to-earnings (PE) multiples for large IT firms could range between 14x and 22x. In the worst case, stocks could see further derating of 30–65%, depending on growth trajectories.

Sector Outlook

While AI presents long-term opportunities, Jefferies believes the near-term transition could weigh on margins and earnings visibility.

The brokerage advised investors to factor in execution risks and potential cyclicality as IT companies pivot toward new revenue streams.

With global clients reassessing spending and technology investments evolving rapidly, the Indian IT sector may face a period of recalibration before growth stabilises.