Missed reversal in IT stocks? Jefferies gives 3 ideas with up to 50% re-rating potential

The brokerage estimates that Sagility could deliver more than 50% rerating potential in a best-case scenario, while Infosys and TCS are the only large-cap IT companies offering more than 20% rerating potential.

The call comes after IT stocks staged a sharp recovery in October. The Nifty IT index has gained about 14% this month, while several individual stocks have advanced as much as 20%. Jefferies said the rally has been driven largely by price-to-earnings rerating rather than upgrades to revenue or earnings estimates.

The brokerage said investor sentiment improved after IT companies continued to deliver growth despite weak macroeconomic conditions and concerns that artificial intelligence could reduce technology spending. Consensus US-dollar revenue growth expectations for FY28 have also remained broadly stable after the second-quarter results, unlike after the previous two quarters.

Jefferies’ preferred large-cap names are Infosys and TCS. It raised the target price for Infosys to Rs 1,160 from Rs 1,020 and for TCS to Rs 2,125 from Rs 1,800. It retained a Hold rating on Infosys and an Underperform rating on TCS.

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The brokerage said both companies are currently priced for only 1%-3% constant-currency revenue growth over FY26-FY36. That leaves room for a rerating if growth expectations stabilise and companies avoid further negative surprises.

Among mid-cap technology companies, Sagility offers the strongest rerating potential, according to Jefferies. The company’s current valuation reflects growth assumptions that are about six percentage points below its historical trajectory. The brokerage also said Sagility’s downside risk appeared lower than that of its mid-cap peers.

At current prices, large-cap IT stocks are pricing in organic constant-currency revenue growth of 0%-9% over FY26-FY36, while mid-cap companies are pricing in growth of 6%-14%. For most companies, the implied growth rates are 2-4 percentage points below the growth delivered between FY16 and FY26.

Infosys and Sagility stand out even more sharply on this measure, with the growth implied in their valuations about six percentage points below their historical growth rates. In contrast, the growth priced into Coforge is broadly in line with its past performance, while Tech Mahindra and Mphasis are already priced for growth above their historical trajectory.

The valuation opportunity, however, is not unlimited. Jefferies said the risk-reward becomes less attractive for large-cap IT stocks beyond 17-18 times earnings unless the growth outlook improves materially.

In its best-case scenario, large-cap IT companies could trade at 15-22 times earnings, while mid-cap companies could command 22-47 times earnings. Under that framework, Infosys and TCS offer more than 20% rerating potential, while Sagility offers more than 50%.

The downside scenario remains a key risk. If IT companies fail to deliver any growth beyond FY29, the brokerage estimates that the sector could trade at 12-13 times earnings. Under a more constructive scenario, where companies maintain their long-term revenue growth trajectory, valuations could support a meaningful rerating.

The immediate trigger for the sector is therefore not a sharp recovery in earnings, but the absence of further deterioration in growth expectations. Jefferies said even a lack of disappointment on growth, combined with worsening sentiment on global AI capital expenditure, could drive a rerating in selected IT stocks.

The sector has already delivered a significant recovery from its February lows. After falling about 20% during the first two months of 2026, the Nifty IT index has gained about 3% since February and outperformed the Nifty 50 by 12 percentage points, with the entire relative outperformance coming in October.