For the past year, MOFSL had stayed negative on IT due to weak discretionary spending and a lack of visibility in traditional service lines. But Pathak now believes the industry is nearing the point where AI-related service demand begins to rise. “We think AI-led services will start picking up maybe in the second half of this calendar year,” he said.
Also Read | Stronger earnings ahead, but don’t expect big gains, says Axis AMCHe added that current stock prices already reflect pessimism. If revenue growth expands from today’s 3-4% levels to 8-9% in the next two to three years, a significant re-rating is possible. “If the cycle turns, there is good upside from these levels,” he said.
Pathak said MOFSL’s revised target prices show 40-70% upside potential across several large- and mid-cap IT companies:
- Infosys: about 40% upside
- Coforge: up to 70% upside over time
- Hexaware: one of the firm’s top picks
- Wipro, Mphasis, Persistent: recently upgraded
He described the sector’s risk-reward as favourable, arguing that “most of the negative news is already priced in.”
In terms of the recent company commentary on little improvement in discretionary demand, Pathak said the current cycle mirrors the 2015-2018 cloud capex boom, where hardware investment surged before service spending accelerated.Also Read | Pharma, healthcare, auto components continue as running themes, says Devina Mehra
He said a similar shift is expected with AI: “Hardware spends eventually rotate into services… this pattern has held across multiple cycles.” MOFSL expects this rotation to begin late this calendar year.
Revenue growth outlook through FY28:
- Large caps: 8.5–9.5% revenue growth by FY28
- Mid-caps: 15–25% revenue growth, depending on company-specific strengths
He highlighted Coforge, Persistent Systems, Hexaware and Mphasis as key mid-cap opportunities, noting that deal momentum and execution strength will determine winners.
Pathak said Indian IT companies could see 40-50% productivity gains across coding, testing, debugging and documentation. But he believes new opportunities—such as platformised services, data engineering, system integration and AI-led service lines—will offset concerns about headcount compression.
He argued that each major technology transition, from mainframe to cloud, created new service lines and revenue streams. “These companies have pivoted successfully time and again,” he said.
For the full interview, watch the accompanying video
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