CLSA’s latest analysis indicates a strategic pivot within Indian technology shares, favouring agile mid-cap companies over larger firms as AI reshapes growth dynamics and industry structure.
CLSA’s latest call on Indian technology shares suggests the market is no longer judging the sector purely by size. In a note released on Wednesday, the brokerage cut its view on five large-cap IT names while sticking with a more constructive stance on selected mid-cap companies, arguing that artificial intelligence is reshaping where growth will accrue across the industry. Trade Brains reported that the move comes even as the Nifty IT index remains about 20% lower this year, despite a partial rebound from July’s 52-week lows.
The more striking feature of the note is that CLSA altered ratings more aggressively than price targets. According to the brokerage and summaries of its note, Wipro and Mphasis were downgraded from “Hold” to “Underperform”, while TCS, Infosys and Tech Mahindra were cut from “Outperform” to “Hold”. Yet the target prices moved only modestly, which points to a concern about future growth rather than a view that the stocks are richly valued today. Moneycontrol said CLSA has been arguing that fears of AI-driven disruption in Indian IT services are exaggerated, even as it trims its expectations on valuation and earnings momentum.
CLSA’s broader thesis is that the industry is facing structural pressure, not just a temporary slowdown. The brokerage pointed to global capability centres doing more work in-house, a lack of market share gains versus international peers and a greater share of AI-related spending flowing to hardware and software rather than traditional services. That combination, it said, could keep pressure on legacy managed services and other mature lines of business for several years.
The firm also sketched out a lengthy transition period. Trade Brains said CLSA believes AI-led deflation in current service lines, together with broader macro headwinds, may not be fully offset by new AI volumes until fiscal 2030. Its projections suggest AI could account for roughly a third of revenue at TCS, Infosys and HCLTech by fiscal 2031, yet overall growth would still be relatively modest. That is a reminder that more AI exposure does not automatically mean faster topline expansion, because pricing pressure in older services may offset some of the uplift.
Where CLSA is more upbeat is in mid-cap names such as Coforge and Persistent Systems, which it kept at “High Conviction Outperform”. It also remained positive on Hexaware Technologies and raised its target on LTIMindtree. NDTV Profit reported that Coforge and Persistent have already outperformed on days when the market has reassessed the sector, while Moneycontrol noted that the sell-off has spread beyond the largest names into mid-caps as investors weigh AI disruption risks.
For investors, the message from CLSA is less about abandoning Indian IT and more about sorting winners from laggards within it. The brokerage appears to believe that companies with greater agility and better positioning around AI-led demand may capture the next phase of spending, while the biggest firms face a slower, more uneven growth path. With price targets barely changed on several downgraded stocks, the main debate now is not valuation, but how quickly the sector’s growth mix can adapt to the new technology cycle.
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