Jefferies spots over 50% upside in Sagility as IT stocks rally

Jefferies has identified a sizable valuation gap in India’s information‑technology sector, estimating that Sagility could provide more than 50% rerating potential in a best‑case scenario. The brokerage also sees more than 20% upside for the two largest listed IT firms, Infosys and Tata Consultancy Services (TCS), under its most optimistic assumptions.

IT sector rally in October

The Nifty IT index posted a robust recovery in October, climbing roughly 14% for the month. A handful of individual stocks posted gains of up to 20% during the same period. According to Jefferies, the rally was driven primarily by a price‑to‑earnings (PE) rerating rather than any upward revisions to revenue or earnings forecasts.

Investor sentiment improved after IT companies continued to post growth despite a backdrop of weak macro‑economic conditions and lingering concerns that artificial‑intelligence (AI) adoption could curb technology spending. Consensus expectations for US‑dollar‑denominated revenue growth in FY28 remained broadly stable after the most recent second‑quarter results, a contrast to the volatility seen after the two preceding quarters.

Jefferies’ valuation outlook

Jefferies highlighted Infosys and TCS as its preferred large‑cap names. The brokerage raised its target price for Infosys to Rs 1,160 from Rs 1,020 and lifted the target for TCS to Rs 2,125 from Rs 1,800. Despite the higher targets, the firm retained a Hold rating on Infosys and an Underperform rating on TCS.

Current market pricing implies that large‑cap IT stocks are factoring in organic constant‑currency revenue growth of 0% to 9% over FY26‑FY36, while mid‑cap peers are priced for 6% to 14% growth over the same horizon. For most companies, these implied growth rates sit 2 to 4 percentage points below the growth actually delivered between FY16 and FY26.

Infosys and Sagility stand out on this metric: the growth embedded in their valuations is about six percentage points lower than their historical performance. By contrast, Coforge’s implied growth aligns closely with its past trajectory, and both Tech Mahindra and Mphasis appear to be priced for growth that exceeds their historical rates.

Jefferies cautioned that the valuation opportunity is not limitless. The risk‑reward profile becomes less attractive for large‑cap IT stocks once valuations exceed 17‑18 times earnings, unless the growth outlook improves materially.

In its most favorable scenario, large‑cap IT companies could trade at 15‑22 times earnings, while mid‑caps could command 22‑47 times earnings. Within that framework, Infosys and TCS each offer more than 20% rerating potential, and Sagility exceeds 50%.

Risks and potential triggers

The downside remains a key risk factor. If IT firms fail to sustain any growth beyond FY29, Jefferies projects the sector could compress to 12‑13 times earnings. Conversely, a more constructive outlook—where companies maintain their long‑term revenue growth trajectory—could keep valuations high enough to support a meaningful rerating.

According to the brokerage, the immediate catalyst for further upside is not a sudden surge in earnings but rather the avoidance of any further deterioration in growth expectations. Even a neutral growth outcome, coupled with worsening sentiment around global AI capital expenditure, could be enough to spark a rerating in selected IT stocks.

The sector has already clawed back a large portion of its losses from early‑year lows. After a roughly 20% decline during the first two months of 2026, the Nifty IT index has recovered about 3% since February and outperformed the broader Nifty 50 by 12 percentage points, with the bulk of that relative outperformance occurring in October.

Jefferies’ analysis underscores that while the recent rally has been largely a PE‑driven bounce, the underlying fundamentals—steady revenue growth and resilient earnings—remain central to any sustained upside. Investors will be watching closely for signs that growth expectations remain intact, especially as the sector navigates macro‑economic headwinds and evolving AI spending patterns.