Global brokerage firm JPMorgan has taken a cautious stance on the Indian IT sector, favoring select mid-tier companies while reducing estimates for Tier 1 and Tier 2 firms.

The brokerage prefers Coforge, Infosys, KPIT Technologies, and Tech Mahindra for the quarter while advising against Tata Consultancy Services (TCS), Wipro, HCL Technologies, Tata Technologies, and Tata Elxsi. It anticipates that fiscal 2026 will reflect modest growth, with guidance unlikely to signal any acceleration.

JPMorgan noted that the fourth quarter is expected to display softer seasonality due to a combination of weak macroeconomic conditions and early signs of deflation in artificial intelligence (AI). While mid-sized IT firms are likely to sustain growth momentum, large-cap players may struggle to maintain positive quarter-on-quarter growth. In response to these headwinds, the brokerage has revised revenue forecasts downward for FY26 and FY27, trimming estimates by 3-5 percent for Tier 1 companies and 2-10 percent for Tier 2 firms.

Company-Specific Updates: Downgrades and Target Price Cuts

JPMorgan has downgraded HCL Technologies to "neutral" from "overweight," citing a weak fourth-quarter performance, sluggish deal wins, and macroeconomic challenges. Reflecting this cautious stance, the brokerage has slashed HCL Tech's target price from ₹2,200 to ₹1,700.

Meanwhile, Tech Mahindra has been upgraded to "neutral" from "underweight," with the brokerage viewing it as a "self-help margin story." However, JPMorgan has kept the company's target price unchanged at ₹1,500.

Further, the brokerage has lowered target prices for multiple IT stocks, reflecting a subdued outlook for the sector. TCS' target price has been cut from ₹4,500 to ₹3,900, Infosys from ₹2,350 to ₹1,900, and Tata Elxsi from ₹5,400 to ₹4,500.

Top Picks and Stocks to Avoid

JPMorgan remains selective in its IT sector recommendations, favoring companies with strong execution capabilities and resilience in a challenging macro environment. The brokerage's top picks for the quarter include Coforge, Infosys, KPIT Tech, LTIMindtree, and Tech Mahindra. On the other hand, it recommends avoiding TCS, Wipro, HCL Tech, Tata Tech, and Tata Elxsi, given the uncertain demand environment and near-term growth headwinds.

The brokerage also highlighted that revenue growth guidance for FY26 is expected to remain modest. Infosys and HCL Tech are likely to guide for 2-5 percent and 3-5 percent growth, respectively, while KPIT Tech is projected to provide higher guidance of 13-16 percent. The overall IT sector's growth trajectory remains uncertain due to a mix of global recessionary fears and client hesitancy in decision-making.

Outlook: Cautious Approach Amid Macroeconomic Challenges

JPMorgan's latest note underscores the difficulties ahead for the Indian IT sector. While mid-tier companies such as Coforge and KPIT Tech remain better positioned, larger firms may continue to face subdued growth due to weak discretionary spending and evolving AI trends. The brokerage maintains a cautious approach, emphasizing that fiscal 2026 is unlikely to bring significant growth acceleration. As a result, investors may need to adopt a selective approach when navigating the IT sector in the near term.