Choice Institutional Equities, in its recent report, said the outlook for the ER&D segment within the IT space remains balanced, with Q4 FY26 indicating improving execution stability and margin resilience, although revenue recovery remains uneven amid delayed deal ramp-ups and conversions.

The domestic brokerage said structural growth drivers remain intact, supporting a gradual recovery into FY27E, with broad-based acceleration increasingly tilted towards the second half of FY27E.

Choice also noted that ER&D valuations have corrected sharply, with most stocks now trading well below their five-year average valuations.

"This reset enhances risk-reward, favouring disciplined, execution-strong vendors with resilient deal wins and capability alignment to next-gen R&D investments," the brokerage stated.

Against this backdrop, Choice said its top two long-term conviction 'Buy' ideas in the ER&D space are KPIT Technologies Ltd and L&T Technology Services Ltd.

On KPIT Technologies, the brokerage said the company is witnessing a shift towards a products-led model and is targeting 50–60 per cent revenue contribution from products over the next three years, with a 21 per cent contribution already coming from the pipeline.

Choice added that the company is moving from time-and-material (T&M) contracts to fixed-price contracts, with over 80 per cent of new contracts being fixed-price and outcome-based, aided by AI-driven productivity gains.

The brokerage also highlighted KPIT Tech's strong positioning in automotive R&D, particularly in advanced driver-assistance systems (ADAS), infotainment and electrical/electronic (E/E) architecture. It expects growth in H2 FY27 to be supported by products and solutions.

Choice has assigned a 12-month target price of Rs 1,030 on KPIT Tech, implying a potential upside of 36.23 per cent from Monday's closing price of Rs 756.05.

On L&T Technology Services (LTTS), the brokerage said the company's portfolio recalibration and AI-led delivery model are improving revenue quality and margins, while helping scale high-value engagements sustainably.

Choice highlighted LTTS' focus areas, including software-defined mobility, plant build-out and modernisation, energy and industrial automation, next-generation compute and AI infrastructure, along with software platforms in AI and med-tech.

The brokerage added that demand remains supported by hybrid vehicle and software-defined vehicle (SDV) investments, while European original equipment manufacturers (OEMs) continue to focus on cost optimisation.

Choice has recommended a target price of Rs 4,350 for LTTS, indicating a potential upside of 22.99 per cent from today's closing price of Rs 3,536.80.