Why Is CLSA Cutting IT Targets Despite AI Positioning Intact?
About the CLSA IT Sector Note
CLSA has revised target prices lower across major Indian IT services companies, citing valuation pressure and near-term downside risk. However, the brokerage maintains that positioning of IT firms in the Artificial Intelligence landscape remains largely unchanged based on recent channel checks.
The brokerage suggests that narrative improvement will likely depend on earnings per share growth recovery rather than management commentary alone. While macro commentary hints at a gradual upcycle this year, valuation compression remains the immediate concern.
The core message from CLSA is not structural pessimism but near-term recalibration. Target price cuts reflect moderation in expectations rather than a fundamental collapse in sector prospects.
Key Highlights From the Report
🔹 AI positioning across IT services companies remains intact
🔹 EPS growth turnaround seen as primary trigger for rerating
🔹 Macro upcycle possible this year; tariff impact largely absorbed in base
🔹 Additional 5–10% downside risk cannot be ruled out
🔹 Large-cap preference: Tech Mahindra, Infosys
🔹 Mid-cap preference: Persistent Systems, Coforge
For traders navigating such sector rotations, disciplined positioning aligned with broader index strength via Nifty Tips can help manage volatility during earnings-led transitions.
Revised Target Prices and Ratings
| Company | New TP | Previous TP | Rating |
|---|---|---|---|
| Coforge | ₹2,278 | ₹2,426 | Outperform (High Conviction) |
| HCL Technologies | ₹1,506 | ₹1,661 | Hold |
| Infosys | ₹1,653 | ₹1,779 | Outperform |
| LTIMindtree | ₹6,304 | ₹7,067 | Outperform |
| Persistent Systems | ₹8,058 | ₹8,865 | Outperform (High Conviction) |
| TCS | ₹3,333 | ₹3,593 | Outperform |
| Tech Mahindra | ₹1,698 | ₹1,810 | Outperform |
| Wipro | ₹218 | ₹231 | Hold |
Broad-based target reductions reflect recalibrated growth assumptions. However, the Outperform bias on most names suggests that CLSA still sees medium-term structural value, especially in AI-integrated transformation plays.
Strengths🔹 AI transition positioning intact 🔹 Macro upcycle visibility improving 🔹 High conviction mid-cap picks |
Weaknesses🔹 Broad target price cuts 🔹 Near-term EPS pressure 🔹 Potential 5–10% downside risk |
The market appears to be discounting earnings uncertainty more aggressively than structural AI growth narratives.
Opportunities🔹 EPS growth rebound can trigger rerating 🔹 AI-led deal pipeline expansion 🔹 Selective mid-cap outperformance |
Threats🔹 Extended valuation compression 🔹 Global macro slowdown 🔹 Delayed tech spending recovery |
Until earnings momentum visibly improves, sector consolidation or mild downside drift remains possible.
