CLSA Raises IT Stock Targets, Bullish on Mid-Caps

IT Sector in Focus Ahead of Earnings Season

Brokerage firm CLSA has revised its outlook on the Indian information technology sector, raising share price targets for eight companies just days before the third-quarter earnings season begins. The report signals a clear preference for select mid-cap players, citing stronger growth potential and execution, while maintaining a cautious but selective stance on large-cap stocks.

Mid-Caps Lead the Pack

CLSA is most bullish on Persistent Systems, Coforge, and LTIMindtree. The brokerage highlighted that these companies are demonstrating robust earnings growth backed by credible management and strong execution. According to analysts, Persistent Systems, in particular, appears delinked from broader macroeconomic headwinds due to its specialized capabilities and consistent performance. This positive view is rooted in the nimbleness of these mid-sized firms and their focused approach on high-growth areas like AI, digital engineering, and enterprise modernization, which has allowed them to outperform their larger peers in recent quarters.

For instance, in the September 2025 quarter, companies like Persistent Systems and Coforge reported constant currency revenue growth between 4.4% and 5.9% quarter-on-quarter, respectively. This contrasts sharply with the sluggish 0.3% to 2.4% growth reported by the larger IT firms during the same period.

A Mixed View on Large-Caps

Among the large-cap IT giants, CLSA expressed a preference for Tech Mahindra and Infosys over HCLTech and Wipro. Infosys is seen as being well-positioned to capitalize on a potential revival in discretionary spending in the US market. However, the brokerage downgraded both HCLTech and Tech Mahindra. The downgrade for HCLTech to 'Hold' from 'Outperform' comes despite its strong Q3 seasonality, which CLSA believes is already priced into the stock. For Tech Mahindra, the rating was lowered to 'Outperform' from 'High Conviction Outperform', with concerns about muted EPS delivery despite its FY27 vision.

Meanwhile, the outlook for Tata Consultancy Services (TCS) is considered weighed down. CLSA suggests that for TCS to regain stronger footing, it needs to demonstrate significant earnings growth and effectively address recent market share losses.

Summary of CLSA's Target Price Revisions

CLSA's updated recommendations reflect a nuanced view of the IT landscape, rewarding companies with clear growth drivers while remaining cautious on those facing turnaround challenges.

Broader Sector Tailwinds

The Indian IT sector is also expected to benefit from currency movements. A weaker rupee against the US dollar provides a natural tailwind for revenues reported in INR. Acknowledging this, CLSA has raised its EPS estimates for most of the IT companies under its coverage. However, it has also made some cuts to its constant currency growth estimates, particularly for the large-cap players, indicating that underlying demand remains a key variable.

Spotlight on LTIMindtree

LTIMindtree has garnered significant positive attention from multiple brokerages. ICICI Securities recently raised its target price on the stock by 13% to ₹7,350, maintaining a 'buy' rating. The brokerage projects a strong compound annual growth rate of 8.6% for the company's US revenue between FY25 and FY28, driven by sustained deal momentum. The company's order inflow of around $1.6 billion in the September quarter underscores healthy demand and provides strong revenue visibility. In its Q2 FY26 results, LTIMindtree posted a 12% year-on-year rise in net profit to ₹1,401 crore, with revenue growing 10% to ₹10,394 crore, reinforcing the positive sentiment.

Market Analysis and Investor Outlook

The recent analysis from CLSA and other firms points to a clear trend: investors are increasingly looking beyond the traditional large-cap IT stocks. The lacklustre performance of some industry giants has shifted focus to mid-sized players that are demonstrating superior growth and agility. This is reflected in their stock valuations, with firms like Persistent Systems and Coforge trading at a premium P/E multiple compared to their larger counterparts.

The key differentiator appears to be a strong focus on AI-led digital transformation and modernization, where nimbler companies are winning significant deals. As the industry navigates macroeconomic uncertainties and pricing pressures, companies with strong execution, a robust deal pipeline, and leadership in next-generation technologies are being rewarded by the market.

Conclusion

As the IT sector heads into its Q3 earnings announcements, the focus will be on whether the growth momentum in mid-caps is sustainable and if large-caps can show signs of a convincing turnaround. CLSA's report underscores a pivotal moment for the industry, where specialized skills and consistent execution are becoming more critical than sheer scale. Investors will be closely watching the upcoming results and management commentary to validate these emerging trends.