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IT Stocks Show Attractive Valuations, But Earnings Recovery Vital for Upside: Equirus
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CNBC TV18•09-10-2026, 12:39
IT Stocks Show Attractive Valuations, But Earnings Recovery Vital for Upside: Equirus
- •Largecap IT stocks are trading at attractive valuations of 12 to 14 times one year forward earnings compared to pre-COVID levels of 15 to 17 times.
- •Free cash flow yields have risen above 5 to 6 percent for multiple largecap companies following a sharp correction in stock prices.
- •Equirus prefers Infosys, TCS, and Tech Mahindra among largecaps, Mphasis in midcaps, and Zensar Technologies in smallcaps.
- •AI adoption is shifting from initial stages to implementation, potentially creating new business opportunities for traditional IT services providers.
- •Sustained stock price recovery depends on a U-turn in organic growth, stronger contract wins, and improved quarterly earnings.
Key Questions Answered
Largecap IT stocks now trade at 12 to 14 times one year forward earnings, which is much lower than their pre-COVID valuation band of 15 to 17 times. This valuation drop is driven by macro-led and AI-led issues.
Equirus Securities prefers Infosys, Tata Consultancy Services (TCS), and Tech Mahindra as its top largecap picks. In the midcap segment, the brokerage favors Mphasis, and prefers Zensar Technologies for smallcaps.
As businesses move past initial AI adoption and deploy technology across operations, they need support integrating frontier models and large language models into existing systems. This growing demand for system integration and IT services creates new business opportunities for traditional providers.
