Job cuts and muted earnings in India’s IT sector have left some investors wondering if they should steer clear of such stocks. Tata Consultancy Services , one of the country’s biggest private sector employers, announced last month that more than 12,000 staff in mostly middle and senior management roles would be cut. That accounts for around 2% of TCS’ global workforce, making it one of India’s biggest IT layoffs thus far . The company attributed the layoffs to mismatched skillsets , but others cited automation as a factor. Elsewhere, Infosys has reportedly slowed down fresher recruitment while Wipro has trimmed roles. The layoffs add a layer of uncertainty to the sector, as firms such as TCS and Infosys recently reported muted earnings growth . “Indian IT services companies exploded over the last six months and we’ve gradually reduced our positions and sold all of them in our portfolio,” said Sat Duhra, portfolio manager at Janus Henderson Investors’ Asia ex Japan equity team. Duhra had held Infosys and HCL Technologies ‘ shares in his portfolio but gradually sold them off in the last few quarters. “The level of growth for Indian IT stocks is really low single digit at best. And for that kind of growth, valuation and yield, it doesn’t make any sense to own it in Asia-Pacific where there are opportunities to buy much cheaper companies with higher yield and growth,” Duhra said. Indian versus Asian tech stocks The portfolio manager sees better opportunities in other markets in the region. Some of them have better yields, valuations and “massive upside and transformation” than their counterparts in India, he added, naming Alibaba Group Holding and Tencent Holdings as examples. India’s Nifty IT Index — which comprises 10 Indian IT companies listed on the National Stock Exchange — has plunged nearly 20% so far this year, underperforming the 22.2% surge in Hong Kong’s Hang Seng Tech Index and the 12.16% gain in the Nasdq-100 Technology Sector Index. The specialization of Indian tech firms is fundamentally different from that of their regional counterparts, said Abhishek Bhandari, executive director at Nomura. He also added that the weight of IT stocks in India’s indices is only in the “early teens,” unlike in other economies. Indian tech companies are services-oriented and typically support the IT functions of global conglomerates, he said. That means they’re often affected by headwinds from a slowing economy, weaker currency and tariff uncertainties. By contrast, tech firms in South Korea, Hong Kong and Taiwan predominantly specialize in hardware and semiconductors, Bhandari said. The generative artificial intelligence boom, he added, has given them “positive tailwinds” because of their higher expenditure on hardware. Not a unique problem But Vikas Pershad, portfolio manager for Asian equities at M & G Investments, said the problems arising from automation that Indian tech firms face are not unique to the country. “Tech companies across the region are reassessing staffing needs in light of automation and AI. At the same time though, we are seeing new opportunities emerge for those firms integrating AI meaningfully into their workflows,” he told CNBC Pro . Nevertheless, although the worst of the layoffs by India’s tech giants appear to be behind us, the portfolio manager said, their effects have spread to other sectors. Pershad remains underweight on the sector, saying it’s “difficult to make a case for an uptick in valuations given the current earnings outlook and the starting point for valuations.” “An inflection point, driven by stronger revenues, improved margins or valuations, or a re-rating of the business model, does not appear to be in our base case at this time,” he added. Stock picks But despite the bleak outlook, Nomura’s Bhandari is “largely neutral on the overall sector,” and sees pockets of opportunities. Infosys is his “top-pick” among large-cap Indian IT services players. “We expect Infosys to post 3.8% y-y USD revenue growth in FY26F (including around 40 basis from acquisitions ),” he said, adding that he has a buy rating at a price target of 1,880 Indian rupees ($21.47), giving it 31.86% upside potential. Bhandari also pointed out that the company added 210 staff in its fiscal first quarter ended June, which represents a quarter-on-quarter growth rate of around 0.1% after accounting for attrition. Another plus is Infosys’ plans to hire 20,000 graduates this year, he added. Nomura has a buy rating on the stock at a price target of $97, giving it 41.05% upside potential from its Tuesday close. Elsewhere, Bhandari has his eye on mid-caps in India’s IT sector, as he expects them to “generally do better” than large-cap names from a growth perspective. “Their growth has now become almost 2-4 times the industry level,” he added. Coforge is Bhandari’s “preferred pick” in this segment, as he forecasts it can “easily deliver around 30% revenue growth this year — multiples of what large-caps are going to do.” Of 34 analysts covering the stock, 23 give it a buy or overweight rating, four have a hold rating, while seven have a sell or underweight call, according to FactSet data. The analysts have an average price target of 1,895.32 Indian rupees for the stock, giving it 16.7% upside potential.
