23 February 2026 (Navroze Bureau) : Global brokerage Jefferies has sounded a strong warning for Indian information technology stocks, cautioning that valuations could see derating of up to 65% if growth conditions continue to deteriorate. In its latest sector note, Jefferies downgraded leading IT companies including Infosys and Tata Consultancy Services (TCS), along with four other IT players, citing slowing revenue growth, demand uncertainty, and sustained margin pressures.
The report comes at a time when IT stocks are already under pressure, having underperformed the broader market over the past several months.
Why Jefferies Turned Bearish
Jefferies said the Indian IT sector is facing a “structural reset” after years of strong post-pandemic growth. According to the brokerage, global clients—especially in the US and Europe—are cutting discretionary technology spending due to macroeconomic uncertainty, high interest rates, and cautious enterprise budgets.
The brokerage believes market expectations still underestimate the depth and duration of the slowdown, making current valuations vulnerable.
Up to 65% Derating Risk
One of the most striking observations in the report is Jefferies’ warning that IT stocks could face valuation derating of up to 65% from peak multiples if earnings disappoint further.
“Growth visibility remains weak, while valuations remain elevated compared to long-term averages,” the report said, adding that earnings downgrades could compound the downside risk for stocks.
Stocks Under Pressure
Apart from Infosys and TCS, Jefferies downgraded four other IT stocks, flagging common challenges across the sector:
- Heavy dependence on discretionary IT spending
- Delays in deal ramp-ups
- Pricing pressure from global clients
- Limited near-term catalysts for earnings upgrades
The brokerage said even large, diversified IT companies are not immune to the slowdown.
Infosys: Growth Headwinds Persist
Infosys was downgraded primarily due to its exposure to financial services clients, a segment facing cost pressures and budget tightening. Jefferies noted that while Infosys continues to announce large deal wins, the conversion of these deals into revenue is taking longer than expected.
The brokerage also flagged margin risks arising from wage inflation and investments in new technologies such as artificial intelligence.
TCS: Scale Not Enough to Shield Growth
TCS, India’s largest IT services firm, was also downgraded despite its strong balance sheet and diversified client base. Jefferies expects TCS’s revenue growth to moderate further as large enterprises delay spending decisions.
While TCS remains relatively resilient compared to peers, the brokerage believes its premium valuation leaves little room for disappointment.
Global Demand Remains the Key Risk
Jefferies highlighted several global factors weighing on the sector:
- Weak economic growth outlook in key markets
- Prolonged slowdown in banking and financial services spending
- Reduced discretionary tech budgets
- Increasing competition from automation and global peers
The brokerage said a meaningful recovery is unlikely until global macro conditions improve.
Margins Under Stress
Margins remain another concern. Although IT companies have taken steps to reduce costs—such as lowering subcontracting expenses and moderating hiring—Jefferies warned that:
- Wage hikes
- Higher investments in AI and digital capabilities
- Currency volatility
could keep margins under pressure in the near term.
What This Means for Investors
Jefferies advised investors to remain cautious on the IT sector, stating that risk-reward remains unfavourable. The brokerage suggested avoiding stocks where growth expectations remain high despite limited visibility.
Instead, investors were advised to focus on balance sheet strength and operational efficiency, while being prepared for further volatility in IT stocks.
Market Reaction and Outlook
Following the report, IT stocks witnessed renewed selling pressure, reflecting investor concern over valuation risks. Market participants say Jefferies’ sharp warning could influence sentiment across the sector in the short term.
Despite the cautious stance, Jefferies maintained that Indian IT remains structurally strong in the long run due to global outsourcing and digital transformation trends. However, the brokerage emphasised that patience will be required, as near-term challenges are likely to persist.
For now, Jefferies’ message is clear: the Indian IT sector faces a tough phase, and valuations may need to reset further before meaningful upside returns.
Summary
Jefferies downgraded Infosys, TCS and four other IT stocks, warning of up to 65% valuation derating due to weak global demand, slowing growth, and sustained margin pressures.