Manik Taneja, Executive Director for IT Services and Internet at Axis Capital, shared his top picks in the information technology (IT) sector as TCS kicked off the third-quarter earnings season on January 9.

Among Tier-I companies, Taneja prefers Wipro and Infosys. Among the tier-II firms, Taneja is bullish on Zensar Technologies, Sagility India, and Firstsource Solutions.

He has a ‘reduce’ rating on Tata Consultancy Services (TCS).

“TCS will fare relatively poor compared to the likes of Infosys and HCLTech on revenue growth in 2025-26,” he said.

This is the verbatim transcript of the interview.

Q: How do you read the TCS numbers? The commentary seemed a little positive, and it seems the Street could latch on to that. 

A: The stock has been weak in the run-up to the results, and that could lead to some up move in general. We reckon that TCS’s relative growth underperformance compared to tier-I peers is likely to continue into calendar year 2025/FY26 (2025-26) notwithstanding the positive commentary. Because of this, TCS will fare relatively poor compared to the likes of Infosys and HCLTech on revenue growth in 2025-26.

Q: What’s the current rating you have on TCS?

A: We have a reduced rating on TCS. Our preferred tier-I picks are Wipro and Infosys.

Q: What about the mid-cap space? Tata Elxsi’s numbers were big. The stock has seen a sharp correction from the top, as has been the case with KPIT Technologies as well. Your comment on this one.

A: Almost all the Automotive Engineering Research and Development (ER&D) companies are likely to essentially see a soft performance for the foreseeable future. The rate of change in general for auto ER&D companies should be negative over the foreseeable future, compared to the fact that the rate of change will be positive for IT services companies.

Also Read | IT Q3 Results Preview: Seasonal weakness to impact growth but Midcaps may outperform

Against that backdrop, the ER&D valuation premium should continue to come off.

And even for Tata Elxsi in particular, for the last couple of years, their growth had been supported only by the automotive vertical. They had been struggling in the other two industry segments. Even if one were to bake in a growth improvement from these industries in 2025-26, the slower growth on the automotive side will mean that Tata Elxsi will likely post another year of possibly a mid-single-digit growth at best, and all these things will essentially mean that multiples will continue to come off for Tata Elxsi.

Q: Is there a tactical trade here in IT services and which stocks should one look at?

A: I would reckon that the likes of Infosys and even Wipro, relative to where the expectations are, should fare better with the upcoming earnings, and that’s where I would rather play over the likes of TCS and even possibly HCLTech amongst the tier-I peers.

Amongst the tier-II names, we like Zensar Technologies, Sagility India and Firstsource Solutions.

Q: Is it possible that with all this focus on the US in a big way, it becomes a slightly macro trade or people will just wait for actual numbers to show up?

A: Macro trade is valid. And I would say the rate of change in the sector, with the way things are placed looks better into calendar year 2025 or 2025-26. The challenge that we face when it comes to India-listed names is that most names trade at par or at a premium to last three or five-year averages.

Also Read | HDFC Securities’ top IT stock picks

Global tech services offer better risk reward, given the relative price underperformance compared to Indian IT, and the fact that those companies trade at lower multiples compared to their own historical levels. So if ever an investor who could buy tech services in India could buy tech services in the US, I would rather play the likes of Accenture, Cognizant, or Capgemini.

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