Negatives mostly priced in for tier 1 IT companies; correction likely in midcaps: Sunny Agrawal
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, Head of Fundamental Equity Research,, says The IT sector faces a weak demand environment as clients seek productivity gains through Gen-AI while expecting cost benefits. While tier I IT company negatives are priced in, midcap IT firms face potential correction due to expensive valuations. KPIT Tech is expected to deliver muted growth commentary for FY26 amid global automobile industry uncertainties.The way the commentary of TCS and Tata Elxsi has played out, it clearly seems there is a lot of uncertainty in terms of demand environment and at the same time, clients want to increase productivity using various Gen-AI tools and at the same time they want the benefit to be passed on to him or her.So, overall, a pretty weak demand environment as far as the IT sector is concerned. Coming to a stock specific action or price action, most of the negatives are already in the price at least for tier I IT companies – be it TCS, Infosys or HCL Tech The issue is with the midcap IT companies. The valuations are very expensive there compared to their largecap peers. In case the demand environment or the commentary is on weaker front from midcap companies, we see a sharp correction in the midcap IT pack.Moving on to the KPIT, the company during the mid-quarter update has already alerted the street that the deal execution is not playing out as per expectation and the deal wins are likely to slow down. Thus the negative news is already priced in for KPIT Tech and any positive development on the automobile side can act as a positive.But given the trade uncertainty going on in the global automobile industry, the transition from ICE engine to electric or for that matter hybrid, the dynamics of the industry are changing very rapidly. We expect KPIT to deliver a very muted set of commentary as far as growth for FY26 is concerned. So, let us wait and see what is the commentary of management on KPIT.
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