Indian IT stocks could be headed for a recovery, according to Nuvama Institutional Equities, which remains positive on the medium- to long-term outlook driven by Gen AI adoption.

The brokerage said Indian IT services companies delivered largely in-line quarterly results, with revenue growth and margins staying stable. Deal wins also remained healthy, aided by AI-led demand and digital transformation programmes, although conversion timelines continued to remain stretched amid macro uncertainty.

"IT stocks are now reacting more to AI developments around the world than to their fundamentals and performances," Nuvama said. "We see the current scepticism as a repeat of previous tech cycles (2016–17 being the most recent one), and expect Indian IT companies to rebound, as Gen AI proliferation increases."

The domestic brokerage argued that the role of system integrators may continue to remain relevant even in the Gen AI era, as enterprises would still require customised implementation and integration support for plug-and-play AI solutions.

Nuvama noted that while IT services firms may continue to face near-term revenue cannibalisation due to Gen AI-led productivity gains, the sector could eventually hit an inflection point that may significantly expand the total addressable market (TAM). It estimates the opportunity size could grow to nearly $300–400 billion by 2030.

The brokerage also highlighted that valuations have turned attractive following the recent sharp correction in IT stocks. Reverse discounted cash flow (DCF) analysis, it said, points to extremely low terminal growth assumptions.

"We remain positive on the sector from a medium to long-term perspective — in the near term, expect volatility to persist," Nuvama added.

Among largecap IT names, the brokerage maintained 'Buy' ratings on Tata Consultancy Services (TCS), Infosys, Wipro and Tech Mahindra with 12-month target prices of Rs 3,650, Rs 1,650, Rs 255 and Rs 1,750, respectively.

With that being said, Nuvama has assigned 'Buy' calls on LTM Ltd (formerly known as LTIMindtree Ltd), Coforge Ltd, Persistent Systems Ltd, Mphasis Ltd, Hexaware Technologies Ltd and Firstsource Solutions Ltd. It assigned target prices of Rs 6,200 for LTM, Rs 2,200 for Coforge, Rs 6,100 for Persistent, Rs 3,200 for Mphasis, Rs 550 for Hexaware Technologies and Rs 320 for Firstsource.

Meanwhile, Ravi Singh, Chief Research Officer at Mastertrust, said, "Large IT firms are already investing aggressively in AI, building their own tools, and partnering with global AI platforms to stay relevant in the next phase of technology spending. So while the near-term sentiment may remain weak, this appears more like an industry transition than a long-term threat to the sector itself."