Jefferies Downgrades Infosys, TCS, And Peers Amid AI Concerns; Trims FY26–28 Estimates

Jefferies has downgraded multiple Indian information technology (IT) companies, citing artificial intelligence (AI)-related concerns and potential structural changes in revenue streams. Infosys, HCL Technologies (HCLT), and MphasiS have been downgraded to ‘hold’, while LTI Mindtree, Tata Consultancy Services (TCS), and Hexaware were cut to ‘underperform’. Coforge, Sagility, and IKS remain the brokerage’s top picks.

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The global research and broking house has reduced earnings estimates by 1-4% across IT firms and now expects 6% compound annual growth rate (CAGR) over FY26–28. Among the companies under coverage,

Coforge, Sagility, and IKS are projected to grow faster at a 19–25% CAGR during this period, supported by relatively higher revenue growth.

Structural Shift In Client Engagements

While Indian IT firms should remain relevant, the nature of client engagements is likely to shift structurally towards advisory and implementation services. Application managed services, which contribute 22-45% of revenues for several firms, could face sharp revenue deflation as AI tools improve.

The brokerage noted that the extent and timing of this potential deflation may intensify as AI adoption deepens.

According to a note authored by Akshat Agarwal and Ayush Bansal of Jefferies, a rising share of advisory and implementation work may increase cyclicality in revenue growth and require changes in talent strategy and operating models.

Sector Underperformance In CY26

At the bourses, IT stocks have underperformed in calendar year 2026 (CY26). The Nifty IT index has declined over 15% in CY26, compared with nearly a 2% dip in the Nifty 50 index during the same period.

ACE Equity data showed that Wipro, Coforge, LTI, Mindtree, Persistent Systems, Infosys, and TCS have been among the top losers, falling by up to 20% so far this year.

Earnings Impact And Growth Assumptions

At current prices, IT stocks are pricing in revenue CAGR of 6-14% in rupee terms for large IT firms and 9–17% for mid-sized IT firms over FY26–36. Terminal growth rates are estimated to range from 4% for Wipro to 7% for IKS.

The brokerage mentioned these implied growth rates are 6-12% lower than the FY16–26E growth rates for Sagility, Hexaware, and IKS, and about 3% lower than those for TCS, Infosys, HCLTech, and Coforge. For Wipro and Tech Mahindra, the implied growth rates are 1–2% higher compared with FY16–26E.

Maintaining long-term revenue growth in line with the previous decade represents the best-case outcome, Jefferies noted. In a worst-case scenario, revenue CAGR over FY26–31 could be 3% lower, implying 15% cumulative deflation, followed by no growth beyond FY31. In such a case, stocks could derate by 30–65%, the brokerage added.