IT Sector Outlook 2026: CLSA sees up to 113% upside

Indian IT snaps losing streak as sentiment turns

Indian IT stocks rebounded sharply on Wednesday, March 18, 2026, after a volatile stretch driven by fears that generative AI tools could disrupt traditional services. The Nifty IT index climbed nearly 3% at one point and was reported up over 4% during the session, snapping a six-day losing streak. The move followed a bullish sector note from global brokerage CLSA, which argued that the AI narrative has created more uncertainty than evidence of near-term revenue damage. Large caps and mid-caps both participated, with mid-cap names leading the gains. The rally also came after a sharp selloff in the prior month tied to “AI-led disruption” concerns.

CLSA’s core message: demand stable, AI risk overstated

CLSA said its channel checks and discussions with major IT firms including TCS, Infosys, HCL Tech and Wipro did not show evidence of pricing deflation in contract renewals linked to new AI tools from Anthropic and OpenAI. That point matters because the market’s recent worry has been that AI could compress billing rates and shrink managed services work. CLSA’s view is that AI is being adopted more as an efficiency and productivity lever rather than a wholesale replacement for IT services. In CLSA’s framing, the debate has shifted toward how vendors productise AI and capture new spend instead of losing existing spend. The brokerage also pointed to BFSI as a key demand driver supporting sector stability.

Valuations: corrected to long-term averages

A central pillar of CLSA’s thesis is valuation. It said sector valuations have corrected to around their 10-year average after the recent decline, which improves the risk-reward for investors looking at entry points. The brokerage retained a constructive stance on several names even as it acknowledged a valuation de-rating driven by investor scepticism on medium- to long-term growth visibility. CLSA’s positioning suggests the recent correction has made stock selection more important than a blanket sector call. It also indicates that investors are weighing near-term uncertainty against longer-term AI-led opportunity.

CLSA target prices and ratings: mid-caps lead the upside

CLSA’s preference skewed toward mid-tier IT firms, where it sees higher upside versus many large caps. Persistent Systems and Coforge were tagged as “High Conviction Outperform” picks, while Infosys, TCS, Tech Mahindra and LTIMindtree were maintained at “Outperform”. HCLTech and Wipro were kept at “Hold”, signalling relatively lower near-term upside versus peers under CLSA’s framework.

How the market reacted: mid-caps outperformed

The sector reaction was broad-based. Reports noted IT stocks rallied up to 4% as CLSA’s stance helped ease AI-led disruption concerns. Coforge and Persistent Systems led gains, with both rising over 4% in one set of market updates. Another update said Coforge rose over 6%, while Oracle Financial Services and Persistent gained about 5% to 5.5%.

Among large caps, Tech Mahindra rose over 3.2%, Infosys and HCL Technologies gained over 2.7% each, and TCS advanced more than 2%. Another market update described Infosys and HCL Tech up around 4% and TCS up about 3% during the same rally. Taken together, the data points show strong buying interest across the pack, with mid-caps delivering the sharpest moves.

AI pricing pressure: the key overhang CLSA tried to clear

The main overhang for IT stocks in recent weeks has been the fear that AI will force vendors to deliver the same outcomes with fewer billable hours, triggering pricing pressure. CLSA’s checks suggested that, at least in current renewals, there was no clear evidence of incremental pricing deflation tied to the latest AI tools. That message played directly into investor positioning because the sector had already seen a sharp selloff on AI-led jitters that began in the US.

CLSA also framed AI as a longer-term services opportunity. One report cited CLSA estimating that the transition from near-term AI “noise” to a larger AI services opportunity could represent a $100 billion to $100 billion market by 2030. While the report did not lay out a company-by-company revenue bridge, it reinforced why the brokerage remains constructive despite near-term uncertainty.

Why BFSI demand matters in this call

CLSA’s view referenced BFSI as a key engine of growth, supporting the argument that demand for Indian IT services remains stable. For investors, BFSI is important because it is typically among the largest verticals for Indian IT exporters and tends to influence discretionary spend cycles. With BFSI cited as driving growth, CLSA’s stance implies that sector demand is not showing signs of a sharp air pocket that would justify panic around immediate AI substitution.

What other brokerages said: recovery expectations and a relief rally

The CLSA note was not the only supportive signal mentioned in market coverage. Morgan Stanley said it expects a relief rally in Indian IT stocks ahead of the earnings season, highlighting large-cap names such as Infosys and TCS as key beneficiaries. Motilal Oswal also expects a sector recovery by 2026, supported by AI services, and referenced preferences that include Infosys and HCL Technologies alongside mid-cap firms such as Coforge.

Separately, Anand Rathi forecast growth for select IT stocks, citing expected gains for Infosys (21.2%), HCLTech (17.4%), LTIMindtree (24.1%) and Persistent Systems (21%). The basis cited was the current AI services surge and investments in cloud infrastructure. Another view in the coverage noted that firms that can clearly demonstrate returns from AI investments may attract higher valuations, while those concentrated in older service lines could face continuing challenges.

Coforge in focus: multiple CLSA targets cited

Coforge received repeated attention as a preferred mid-cap. Alongside the CLSA table that cited a target of Rs 2,278 and 113% upside, a separate Kolkata-focused report said CLSA assigned Coforge an ‘Outperform’ rating with a target price of Rs 2,426. That report referenced a market price of Rs 1,220.80 and implied upside of 98%.

The same Coforge-focused report cited profitability metrics: ROCE of about 20% and ROE of about 16%. It described Coforge as a global digital services company with exposure to AI, cloud computing, data analytics, automation and product engineering. While these descriptions support the investment narrative, the market reaction on the day reflected that investors were primarily trading the sector-level AI and valuation messaging.

Risks and watchpoints: productivity gains versus execution constraints

Even as the AI overhang eased, the coverage highlighted execution risks. One section pointed to expected AI-driven productivity gains of 25% to 50% and potential margin expansion of 200 to 400 basis points, but said these benefits could be tempered by talent shortages and infrastructure readiness. It also noted that scaling AI could increase reliance on external partners and resource-intensive implementation.

CLSA’s stance also acknowledged that price targets were reduced across the board in the context of the valuation de-rating, even while maintaining preferred picks. For investors, this combination matters: positive long-term framing, but recognition that confidence on medium-term growth visibility has weakened. The next set of earnings commentary and deal conversion updates are likely to be key checkpoints for whether sentiment stays improved.

Conclusion: selective optimism as AI fears cool

Wednesday’s rally in Indian IT stocks reflected a shift from blanket AI fear to more selective stock and valuation-based positioning. CLSA’s channel checks around renewals and its view that valuations are back near long-term averages helped support the rebound, with Coforge and Persistent Systems standing out in both ratings and price action. Other brokerages also pointed to a possible near-term relief rally and a longer runway for AI services.

The next catalysts referenced in market commentary include the approach of the earnings season and investors’ focus on deal pipelines, renewal pricing and evidence of returns from AI investments. For now, the data points cited suggest the market is rewarding companies that appear best positioned to convert AI adoption into measurable services growth.