Indian IT To Gain On Favourable Macros, Says Morgan Stanley

While the Indian IT sector has experienced a notable rally, there is still room for further gains, driven by a continued revenue upgrade cycle which should keep multiples high, according to Morgan Stanley Research.

The recent rally in Indian IT stocks, with gains ranging from 12% to 40% since early June, has led to heightened valuations, according to a report by the brokerage.

Morgan Stanley asserts this does not necessarily signal the end of the positive trend. The brokerage firm projects that the revenue upgrade cycle, which began in the first quarter of the fiscal year, will persist for at least one to two more quarters. This cycle is expected to sustain high valuations for the sector.

There are several factors contributing to the optimistic outlook for Indian IT services. The uptick in spending from the banking, financial services, and insurance sector is expected to maintain high growth expectations for fiscal 2026.

Additionally, specific company factors such as improving deal-conversion ratios, stabilising margins, and increased wallet share are expected to support further outperformance for certain companies, particularly LTIMindtree Ltd.

Morgan Stanley also points to favourable macroeconomic conditions as a positive driver. Indicators such as the US GDP growth rate and S&P 500 earnings remain supportive.

Morgan Stanley has adjusted its recommendations and price targets for several Indian IT stocks based on the updated revenue projections and market conditions.

The brokerage firm has upgraded LTIMindtree to an overweight rating and raised its price target to Rs 7,050 per share. Infosys Ltd. also received a price target increase to Rs 2,150 apiece. Conversely, HCL Technologies Ltd. was downgraded to an equal-weight rating due to limited revenue growth signals, despite its strong recent performance.

Tata Consultancy Services Ltd. saw its price target rise to Rs 4,910 per share, while Wipro Ltd.’s target was adjusted to Rs 500 apiece. Other notable revisions include Tech Mahindra Ltd. and Coforge Ltd., with increased targets of Rs 1,680 per share and Rs 7,825 apiece, respectively.

Morgan Stanley remains optimistic about the sector’s potential for upside in revenue growth estimates, particularly in the second quarter.