Jefferies sees valuation upside in select IT stocks despite muted growth forecast

Jefferies, however, remains cautious about the sector's growth outlook.

Jefferies, however, remains cautious about the sector's growth outlook and believes the risk-reward becomes unfavourable beyond 17-18 times earnings.

"Whilst the revenue growth outlook for the sector remains muted over FY26-29, a lack of incremental negative surprises on growth, amid potentially worsening sentiment on global AI capex, may drive a rerating in IT stocks," the brokerage's analysts said in a client note.

Jefferies has raised its target prices for Infosys and TCS by 14-18% to ₹1,160 and ₹2,125, respectively, while retaining its 'hold' rating on Infosys and 'underperform' rating on TCS.

The brokerage said the worst-case scenario for IT companies would be no growth beyond FY29, in which case their stocks could trade at price-to-earnings (PE) ratios of 12-13 times.

"Maintaining the long-term revenue growth trajectory in line with the growth seen over FY21-26 is the best case in our view," Jefferies said.

Under this scenario, it estimated PE ratios of 15-22 times for large IT companies and 22-47 times for mid-sized firms.