Lone warriors! How two mid-tier tech stocks rewarded investors in Rs 10 lakh crore IT crash this year

Indian IT stocks have been one of the weakest pockets of the market this year, with the sector losing more than Rs 10 lakh crore in market value as investors turned cautious on growth, client spending and the impact of artificial intelligence on traditional outsourcing work. The damage has been severe in the biggest names. Wipro is down 30% so far this year, Infosys has fallen 28%, TCS is down 25% and HCL Tech has lost 18%.

But two mid-tier IT stocks have managed to stand apart in the selloff. Coforge is up 7% year-to-date, while LTM is up 1%. LTM has also gained 21% in the past one month, making it one of the sharper rebounds in the sector.

Their performance has given investors a rare pocket of stability in an industry where largecap names have struggled to defend valuations. The reason is that, analysts say, both Coforge and LTM have shown enough on deal wins, margin defence and AI-linked work to keep investor confidence alive.

Large IT names lose ground

The fall in large IT stocks reflects a wider concern in the sector. Clients in the US and Europe have been slow to restart discretionary technology spending. Large transformation projects are taking longer to close. Pricing pressure has also increased as companies look for savings from automation and AI-led productivity.

This has hit the traditional IT services model, where growth depends heavily on large managed services contracts and long-term outsourcing deals.

AI has added another layer of uncertainty. Investors are trying to judge whether AI will create fresh revenue for IT companies or reduce billing opportunities by making software development and support work more efficient.

CLSA said select mid-tier companies now look more attractive than largecap IT names. “We do not see the AI deflation impact being more than offset by additional volume around AI anytime soon. Hence we prefer good quality mid-tier operators over large caps having high managed services exposure ripe for AI disruption,” the brokerage said. It sees the best risk-reward in Coforge and LTM among its coverage.

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Why LTM has been a standout

LTM has still rallied because investors saw signs of a better second half even though the latest first quarter has not been up to the mark. The company reported EBIT margin of 15.5% in Q1, up 40 basis points from the previous quarter and 120 basis points from a year earlier. This came despite wage hikes, which usually hurt margins.

The improvement was helped by cost optimisation, operating efficiencies and forex gains, which softened the impact of salary increases. Deal inflows stood at $1.7 billion during the quarter and remained stable sequentially.

The company won two large deals, including an IT consolidation contract from a US multinational company and an infrastructure modernisation deal with a US insurance company. It also won two outcome-based AI implementation deals for its BlueVerse Voicing SLM platform.

AI is now a key part of LTM’s growth pitch. The company has reorganised itself around three lines of business: iRun, iTransform and Business AI. Its AI revenue has reached a quarterly run-rate of $150 million.

The company has also laid out a five-year plan, called Lakshya 31, to almost double revenue to about $10 billion by FY31 through organic growth and selective acquisitions.

Choice Equities said management commentary has turned more constructive on growth, AI monetisation and margin expansion. The brokerage said growth is expected to improve from Q2, supported by recovery in the consumer segment, delayed India project ramp-ups and stronger execution in the second half of FY27.

Motilal Oswal has a Buy rating on LTM with a target price of Rs 4,900, implying about 21% upside from its current market price of Rs 4,037.

Coforge's order book gives comfort

Coforge has been the better performer among the two on a year-to-date basis. The stock is up 7% this year and has drawn interest because of strong order wins, AI-linked services and the Encora acquisition. In Q1, Coforge beat revenue and EBIT margin estimates, while profit was in line. Its order intake stood at $691 million, entirely from the organic business and excluding Encora bookings and UK framework agreements.

The company’s 12-month executable order book reached a record $2.23 billion, up 44.2% year-on-year (YoY). It has also announced a $230 million-plus five-year modernisation deal in Europe at the start of the second quarter.

This gives the company better revenue visibility than many peers at a time when the sector is struggling with uncertain demand.

Coforge's AI-led engineering, data and cloud services accounted for 86% of Q1 revenue. More than 30% of active engagements already use AI. The company has launched Coforge Nuuron, an AI operating system that supports eight AI platforms, 22 assets and more than 100 reusable AI agents.

The Encora acquisition has also added scale. It has doubled Coforge's healthcare business and added high-tech as a new vertical. One Encora client is already among the combined entity’s top 10 accounts.

Axis Securities said Coforge's strong executable order book and sustained client spending across verticals should support growth. The brokerage raised its target price to Rs 2,275 from Rs 1,690 and maintained a Buy rating.

Elara, however, turned cautious after the stock’s sharp rally. It said Coforge’s growth should pick up from Q2, but downgraded the stock to Reduce as it saw limited upside after a rise of more than 50% in four months.

Mid-tier edge in a weak year

Not all mid-tier IT stocks have done well. Happiest Minds Technologies is down 12% this year and Persistent Systems has fallen 11%. That makes the performance of Coforge and LTM more notable. Both stocks have held up because they have given investors a clearer growth story at a time when the sector is short of confidence.

For now, analysts see Coforge has order-book strength, acquisition-led scale and an AI-heavy services mix. LTM has margin improvement, stable deal wins and a visible AI revenue run-rate.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)