Brokerage firm Jefferies prefers shares of Tata Consultancy Services, and Infosys among the IT stocks, given their limited risk to earnings and the valuation comfort they offer.

However, the brokerage remains selective within the entire IT sector as it sees limited scope for positive surprises to consensus expectations of US Dollar revenue growth of 7.5% to 8% in financial year 2026 and 2027, as these estimates already price in a pick-up in discretionary spends.

Jefferies wrote in its note that the Nifty IT index has outperformed the Nifty in 2023 and 2024 so far despite cuts to their Earnings per Share (EPS) estimates of most of the companies.

“The recent upmove in IT may be led more by technical factors, given that despite similar growth, Indian IT trades one standard deviation above its five-year average price-to-earnings multiple, while Accenture trades below the same benchmark

Year	Nifty IT	Nifty
2024 (YTD)	17%	15%
2023	24%	20%
2022	-26%	4%
2021	60%	24%
2020	55%	15%
2019	8%	12%
2018	24%	3%

Most of the Nifty IT constituents have rallied despite cuts to their Earnings Per Share (EPS) estimates for 2026.

Stock	2026 EPS Raise / Cut
TCS	1%
Persistent Systems	-2%
Infosys	-3%
Wipro	-4%
HCLTech	-4%
Mphasis	-6%
Tech Mahindra	-12%
Coforge	13%
LTIMindtree	-15%

Jefferies pins the recent outperformance of the Nifty IT versus the Nifty on hopes of a sharp recovery in growth.

Most IT stocks have seen a downward revision to consensus EPS estimates for financial year 2025 – 2026, but the stock performance has been well co-related to the earnings outlook.

“While FIIs have cut their positioning on Indian IT recently on rich valuations, we note that Domestic MFs, after adding throughout 2024, are now nearly Neutral on IT. This may make incremental buying difficult, particularly amidst weak earnings outlook,” the Jefferies note said.

Shares of IT stocks are rallying on Monday after Fed Chair Jerome Powell last week indicated that rate cuts are imminent, triggering a sharp rally in Wall Street, particularly on the tech-heavy Nasdaq.

While the Nasdaq composite is still around 800 points away from conquering its previous peak, the Nifty IT index is trading near its record high, having scaled a new peak in the week gone by.