What Does CLSA’s 2QFY26 IT Preview Reveal About Growth and Valuations?
CLSA has released its 2QFY26 IT sector preview, offering a comprehensive assessment of industry growth, earnings outlook, and company-specific performance. The note highlights a tempered view on overall sector growth, valuation resets, and selective positives in a few stocks. For investors tracking the Indian IT services space, this preview sets the tone for how the sector may perform amid global macro uncertainty.
About CLSA’s IT Sector Coverage
CLSA is a leading global brokerage and investment group known for its detailed sectoral insights. Its IT coverage spans India’s top technology service providers including TCS, Infosys, HCLTech, Wipro, Tech Mahindra, L&T Infotech Mindtree (LTIM), Persistent Systems (PSYS), and Coforge. The firm’s commentary holds weight in shaping institutional investor strategies given its reputation for deep-dive analysis and data-driven calls.
Sector Growth Outlook
📉Sector growth forecast for CY26 has been trimmed to mid-single digits from earlier high-single digits, reflecting global demand weakness and softer discretionary IT spending.
According to CLSA, clients are increasingly cautious on large transformation deals, with project ramp-ups slowing across North America and Europe. This moderation affects both tier-1 and select tier-2 IT firms.
Valuation Pressure
⚠️CLSA points out that valuation multiples are being reset to the 10-year average versus the previously used 5-year average.
Factors behind this reset include weak macroeconomic conditions, higher tariffs, the recent H1B visa fee hikes, and the impact of the new HIRE Act. The combination of these factors creates earnings visibility risks and narrows the valuation premium previously enjoyed by IT leaders.
Earnings and EPS Impact
💰CLSA has marginally lowered EPS estimates for IT majors, largely due to revised USD:INR assumptions.
This downward revision is not drastic but indicates the brokerage’s caution that currency benefits may not fully offset margin pressures. For the top-tier firms, growth is now projected to be more conservative, aligning with clients’ spending priorities.
Company-Specific Highlights
✅Target prices for TCS, Infosys, HCLTech, Wipro, Tech Mahindra, LTIM, and Persistent Systems have been rolled forward by a quarter.
While broad ratings are maintained, CLSA highlights stock-specific nuances:
- 🔻Infosys is likely to further narrow its FY26 revenue guidance, reflecting execution delays and macro headwinds.
- 💡HCLTech is expected to maintain its revenue guidance, signaling relative resilience.
- 🎯Persistent Systems (PSYS) and Coforge are highlighted as positive picks thanks to strong QoQ EPS growth and limited macro exposure.
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Ratings and Recommendations
✅CLSA maintains Outperform (O-PF) ratings on Tech Mahindra, Persistent Systems, Infosys, and Coforge.
The brokerage emphasizes that select mid-tier names with strong execution and digital focus are better positioned than larger peers weighed by legacy transformation projects.
Investor Takeaway
CLSA’s preview underscores a cautious yet selective stance on Indian IT. While sector growth has been moderated and valuations reset, opportunities remain in firms like PSYS and Coforge that are less impacted by global macro uncertainties. Investors should brace for earnings moderation in larger players but may explore mid-tier IT for relative outperformance. Staying stock-selective is key in navigating FY26 IT sector volatility.
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
