Coforge, Persistent Systems, Tech Mahindra, Mphasis, HCL Tech dip as Nifty IT slips, Kotak warns of Gen AI disruption risks

By Admin

06 Mar, 2026

The Indian IT sector witnessed renewed pressure in the stock market as concerns over the long-term impact of generative artificial intelligence (Gen AI) triggered a decline in IT stocks. Shares of companies such as Coforge, Persistent Systems, Tech Mahindra, Mphasis, and HCLTech declined as the Nifty IT slipped during Thursday’s trading session.

The drop came after analysts at Kotak Institutional Equities warned about potential disruption risks from the rapid adoption of generative AI technologies across the global IT services industry.

Nifty IT Erases Early Gains

The Nifty IT index initially opened higher at 30,554.85, compared to its previous close of 30,305.25. However, the early gains faded quickly as selling pressure emerged across the sector.

During the trading session, the index fell as much as 1.5% to an intraday low of 29,823.15. By the end of the day, the index managed to trim some losses but still closed 0.59% lower at 30,126.80.

This decline came after a relatively resilient performance in the previous session, where the IT index was the only sectoral index that ended in the green despite a broader market downturn. The latest session, however, saw widespread selling across both large-cap and mid-tier IT companies.

Mid-Tier IT Stocks Lead the Decline

Several mid-tier IT companies were among the biggest losers of the day. Shares of Mphasis, Persistent Systems, Coforge, Tech Mahindra, and LTIMindtree fell by up to 2%, reflecting investor concerns about the sector’s growth outlook.

Meanwhile, major IT heavyweights including Infosys, Tata Consultancy Services, and Wipro ended the day largely flat, indicating relatively stable investor sentiment toward established market leaders.

Kotak Cuts Earnings Estimates and Target Prices

Factoring in slower growth prospects and rising disruption risks from AI, Kotak Institutional Equities revised its outlook for the IT sector. The brokerage reduced earnings per share (EPS) estimates by 1–3% across the companies under its coverage.

Additionally, it cut fair value estimates by around 15–28% and raised its cost of equity assumptions by 50–100 basis points, reflecting increased uncertainty around future revenue growth.

Revised Target Prices for Large-Cap IT Companies

Kotak now assigns the following target prices:

• TCS: ₹3,090 per share
  
  

• Infosys: ₹1,530 per share
  
  

• Tech Mahindra: ₹1,615 per share
  
  

• HCLTech: ₹1,425 per share
  
  

• Wipro: ₹190 per share
  
  

Target Prices for Mid-Tier IT Firms

For mid-tier IT companies, Kotak’s updated valuations include:

• LTIMindtree: ₹4,430
  
  

• Coforge: ₹1,620
  
  

• Persistent Systems: ₹4,615
  
  

• Mphasis: ₹2,275
  
  

• Hexaware: ₹620
  
  

The brokerage expects Tier-1 IT companies to trade at around 13–18 times FY2028 earnings, while mid-tier firms may command higher valuations of 18–27 times due to faster growth potential.

Kotak also downgraded Persistent Systems from “sell” to “reduce.”

Preferred Picks in the Sector

Despite its cautious outlook, Kotak continues to identify selective investment opportunities within the IT sector.

Among large-cap companies, the brokerage prefers:

• Infosys
  
  

• TCS
  
  

• Tech Mahindra
  
  

According to Kotak, current valuations for these firms already reflect slower growth expectations while offering attractive free cash flow and dividend payout yields.

In the mid-tier category, Coforge and Hexaware are the brokerage’s preferred picks due to relatively lower valuations and stronger growth potential.

Rising Disruption Risks from Generative AI

A major factor behind the cautious outlook is the rapid rise of generative AI technologies. Kotak believes that widespread AI adoption could increase productivity in software development and IT operations, potentially leading to revenue deflation for traditional IT services providers.

The brokerage now estimates that global IT services revenue could face deflation of about 3–3.5% in FY2027–28, higher than its earlier estimate of 2–3%.

This shift is being driven by:

• Faster innovation cycles in AI models
  
  

• Growing enterprise adoption of AI tools
  
  

• Developers and companies embracing AI-first software development approaches
  
  

While overall technology spending is expected to increase due to AI investments, a larger share of that spending may go to hyperscalers and AI labs, rather than traditional IT services firms.

As a result, Kotak expects global IT services growth to remain moderate at around 4–5% annually in dollar terms over the next decade.

Mid-Tier IT Firms Could Gain an Advantage

Interestingly, Kotak believes mid-tier IT companies may outperform larger incumbents in the evolving AI-driven technology landscape.

Large IT companies face pressure due to their massive revenue base, which makes it harder to offset productivity-driven pricing deflation. In contrast, smaller firms often have greater flexibility to reinvent their services and adopt emerging AI opportunities more quickly.

However, the brokerage warned that certain segments may be particularly vulnerable to AI disruption. These include:

• Application development services
  
  

• Customer BPO services
  
  

On the other hand, areas such as infrastructure management and consulting services may remain relatively resilient.

AI Transition May Create New Opportunities

According to Choice Institutional Equities, the overall outlook for the IT services sector remains neutral, with AI adoption expected to be gradual rather than immediate.

Industry feedback from senior technology leaders indicates that companies are likely to adopt AI cautiously due to several challenges:

• Legacy system complexity
  
  

• Regulatory restrictions
  
  

• Data security concerns
  
  

• Need for human oversight in critical systems
  
  

Choice estimates that Gen AI may cause pricing deflation of around 2–3% in existing engagements, but it is also expected to create new opportunities in areas such as:

• AI infrastructure development
  
  

• Data engineering
  
  

• AI governance frameworks
  
  

• Legacy system modernization
  
  

The brokerage believes mid-tier IT companies are structurally better positioned to benefit from this shift because of their agility, diversified client exposure, and stronger data engineering capabilities.

Its long-term preferred stocks include:

• Coforge
  
  

• Persistent Systems
  
  

• Happiest Minds Technologies
  
  

• KPIT Technologies
  
  

Long-Term Outlook: Structural Relevance Remains

Despite near-term headwinds, analysts believe the IT services sector will remain structurally important to the global technology ecosystem.

Generative AI is expected to transform service delivery models and improve productivity, but it is unlikely to eliminate the need for IT services companies altogether.

Instead, the industry may experience moderate growth, changing revenue models, and periodic volatility as investors reassess the long-term implications of AI adoption.

For investors and technology firms alike, the next decade will likely be defined by how effectively companies adapt to the AI-driven transformation of the IT services landscape.