India’s IT Sector Faces Sharp 2025 Valuation Reset as Mid-Caps Outshine Large Players

India’s information technology sector is experiencing a major valuation reset in 2025, with the Nifty IT index sinking well below the Nifty 50 and underperforming by nearly 25% year-to-date. According to a recent Jefferies report, the downturn stems from a steep 16% price-to-earnings (PE) derating, driven by global macroeconomic uncertainty and mixed signals around artificial intelligence spending. This marks a sharp contrast to 2023 and 2024, when the sector posted notable outperformance.

At the start of 2025, Indian IT stocks were trading at elevated valuations—nearly 15% above their five-year average—leaving little buffer for weakening demand. As growth expectations softened, large-cap IT firms like TCS, Infosys, and Wipro faced earnings downgrades between 3% and 12%, triggering sharper corrections. TCS has dropped around 23% in 2025, while Infosys is down 17%, reflecting cautious client spending and limited visibility on enterprise tech budgets.

In contrast, mid-sized IT companies such as Coforge, Sagility, and Hexaware have delivered stronger performance, beating the Nifty IT index by 11% to 20%. These companies benefited from earnings upgrades and improved demand for digital transformation and specialized services. LTIMindtree and Hexaware are among the few names with positive returns this year, underscoring the tight link between stock performance and earnings revisions.

Growth uncertainties loom large. Accenture’s fiscal 2025 outlook signals flat revenue growth at best, while Tech Mahindra predicts only gradual improvement ahead. Jefferies expects Indian IT sector revenue to grow 4.3% in FY27 and 5.4% in FY28—well below market consensus.

Valuations have now corrected toward long-term averages, with the Nifty IT index trading at 23.7x forward earnings versus a five-year average of 25.3x. However, the index trades at an unusually high 33% premium to Accenture, compared to a decade-long trend of trading at a discount, potentially dampening foreign investor appetite.

Jefferies favors selective stock picking, particularly mid-cap names with stronger earnings trajectories. It maintains buy ratings on Coforge (₹2,180 target), Sagility (₹62 target), and Hexaware (₹820 target). Among large caps, Infosys and HCLTech remain buys with modest upside potential, while TCS and LTIM are rated hold. Wipro, Tech Mahindra, and Newgen are expected to underperform.

This evolving landscape highlights the importance of earnings resilience, realistic growth expectations, and valuation discipline as India’s IT industry navigates a challenging 2025.